Interim Audit Report of the 

Audit Division on Kelly for 

Congress 

(March 2, 2015 - December 31, 2016) 

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 

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 Campaign (p. 2) 

Kelly for Congress is the principal campaign committee for John 

Trent Kelly, Republican candidate for the United States House of 

Representatives from the state of Mississippi, 1^* Congressional 

District, and is headquartered in Tupelo, Mississippi. For more 

information, see the Campaign Organization chart, p.2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Political 

Committees 

Candidate Loan 

Other Receipts 

Total Receipts 

Disbursements 

Operating Expenditures 

Transfers to Other Authorized 

Committees 

Candidate Loan Repayment 

Contribution Refunds 

o 

o 

o 

o 

o 

o 

Total Disbursements 

$ 567,830 

486,658 

50,000 

420 

$ 1,104,908 

$ 839,781 

60,600 

50,000 

550 

S 950,931 

Findings and Recommendations (p. 3) 

• Receipt of Apparent Prohibited Contribution - Bank Loan 

(Finding 1) 

• Receipt of Contributions that Exceed Limits (Finding 2) 

52 U.S.C. §30111(b). 
Interim Audit Report of the Audit 

Division on Kelly for Congress 

(March 2, 2015 - December 31, 2016) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contribution - Bank Loan 4 

Finding 2. Receipt of Contributions that Exceed Limits 6 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Kelly for Congress (KFC), 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 52 U.S.C. §30111 (b), which permits the Commission to 

conduct audits and field investigations of any political conunittee that 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 filed by selected committees to 

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

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

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

'3. the disclosure of contributions received; 

4. the disclosure of individual contributors' occupation and name of employer; 

5. the consistency between reported figures and bank records; 

6. the completeness of records; and 

7- other committee operations necessary to the review. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration March 11,2015 

• Audit Coverage March 2,2015^ - December 31,2016 

Headquarters Tupelo, Mississippi 

Bank Information 

• Bank Depositories One 

• Bank Accounts One checking, one savings 

Treasurer 

• Treasurer When Audit Was Conducted Fred H. Page 

• Treasurer During Period Covered by Audit Fred H. Page 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Ch^erview of Financial Activity 

(Audited Amounts) 

Cash-on-hand (Si March 2,2015 $0 

Receipts 

o Contributions from Individuals 567,830 

o Contributions from Political Committees 486,658 

o Candidate Loan 50,000 

o Other Receipts 420 

Total Receipts $ 1,104,908 

Disbursements 

o Operating Expenditures 839,781 

o Transfers to Other Authorized Committees 60,600 

o Candidate Loan Repayment 50,000 

o Contribution Refunds 550 

Total Disbursements $ 950,931 

Cash-on-hand @ December 31,2016 $ 153,977 

^ KFC opened its first bank account March 2,201S. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contribution -

Bank Loan 

KFC received a bank loan totaling $50,000 to pay for campaign advertisement expenses. 

The Candidate, John Trent Kelly, obtained a bank loan on behalf of KFC. Based upon 

loan documents provided by KFC, it does not appear that the loan was made in the 

ordinary course of business because it was not niade on a basis that assured repayment 

and, therefore, appears to be a prohibited contribution from the bank. The Audit staff 

recommiends that KFC provide documentation demonstrating the bank loan was made in 

the ordinary course of business and made on a basis that assured repayment. (For more 

detail, see p. 4.) 

Finding 2. Receipt of Contributions that Ebcceed Limits 

Based upon a review of loans received and contributions from individuals, the Audit staff 

identified contributions totaling $75,100 that exceeded the limit. This consisted of a 

contribution made in connection with a loan received ($49,900) and contributions from 

individuals ($25,200). KFC untimely resolved excessive contributions from individuals, 

totaling $25,200. The Audit staff recommends that KFC provide documentation 

demonstrating that the contributions were not excessive or, if excessive, were resolved in 

a timely manner. The Audit staff further recommends KFC provide any additional 

comnients it deems relevant to the matter. (For more detail, see p. 6.) 
Part IV 

Findinga and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contribution -

Bank Loan 

Summary 

KFC received a bank loan totaling $50,000 to pay for campaign advertisement expenses. 

The Candidate, John Trent Kelly, obtained a bank loan on behalf of KFC. Based upon 

loan documents provided by KFC, it does not appear that the loan was made in the 

ordinary course of business because it was not made on a basis that assured repayment 

and, therefore, appears to be a prohibited contribution from the bank. The Audit staff 

recommends that KFC provide documentation demonstrating the bank loan was made in 

the ordinary course of business and made on a basis that assured repayment. 

Legal Standard 

A. Loans Excluded from the Definition of Contribution. A loan of money to a 

political committee by a State bank, a federally chartered depository institution 

(including rational bank) or a depository institution whose deposits and accounts are 

insured by the Federal Deposit Insurance Corporation or the National Credit Union 

Administration is not a contribution by the lending institution if such loan is made in 

accordance with applicable banking laws and regulations and is made in the ordinary 

course of business. 

A loan will be deemed to be made in the ordinary course of business if it bears the 

usual and customary interest rate of the lending institution for the category of loan 

involved; is made on a basis which assures repayment; is evidenced by a written 

instrument and is subject to a due date or amortization schedule. 11 CFR § 100.82(a). 

B. Assurance pf Repayment. Conunission regulations state a loan is considered made 

on a basis which assures repayment if: 

• The lending institution making the loan has perfected a security interest in . 

collateral owned by the candidate or political committee receiving the loan; 

• Amounts guaranteed by secondary sources of repayment, such as guarantors and 

cosigners, do not exceed the contribution limits of 11 CFR part 110; 

• The lending institution making the loan has obtained a written agreement whereby 

the candidate or political committee receiving the loan has pledged future 

receipts, such as public financing payments; and 

• If these requirements are not met, the Commission will consider the totality of 

circumstances on a case by case basis in determining whether the loan was made 

on a basis which assured repayment. 11 CFR § 100.82(e). 
Facts and Analsrsis 

A. Facts 

KFC received a $50,000 bank loan on May 14,2015, to pay for campaign advertisement 

expenses. The Candidate, John Trent Kelly, obtained the loan on behalf of KFC from the 

First American National Bank (FANE) in Tupelo, Mississippi. This loan was guaranteed 

by an associate of the Candidate, who also provided collateral in the form of two 

automobiles. KFC submitted documentation from FANE showing that the automobiles 

had a combined National Automobile Dealers Association (NADA) value of $52,925, as 

of the date of the loan. The loan had an interest rate of 3.875% with a maturity date of 

May 14,2016. KFC repaid FANE in full for the loan on June 5,2015. 

The loan was reported on Schedule A (Itemized Receipts) as being from the Candidate 

instead of from FANE; on Schedule C (Loans) and Schedule C-1 (Loans and Lines of 

Credit from Lending Institutions) as not secured, with no guarantor, with the incorrect 

interest rate and with no collateral provided. 

Based upon the documents provided by KFC, it does not appear that the loan was made in 

the ordinary course of business because it was not made on a basis that assured 

repayment. 

• Neither the Candidate nor KFC owned the collateral.^ A loan may be 

considered made on a basis that assures repayment if the lending institution 

making the loan perfects a security interest in collateral owned by the 

Candidate or political committee receiving the loan. KFC submitted a copy of 

the Consumer Security Agreement between the guarantor and FANE 

indicating that the guarantor provided the collateral (two automobiles), which 

he pledged as security for the loan! 

• The guaranteed loan amount exceeded the contribution limit (see Finding 2, 

Receipt of Contributions that Exceed Limits). A loan may be considered 

made on a basis that assures repayment if the amount guaranteed by a 

secondary source of repayment, such as a guarantor, does not exceed the 

contribution limits. KFC provided the Audit staff with a copy of a document 

enticed Notice of Final Agreement that identified the guarantor of the $50,000 

loan. The contribution limit at the time that the loan was made was $2,700 

per election. Therefore, the guarantor made an excessive contribution to KFC 

totaling $49,900 ($50,000 less $100 remaining of his contribution limit after 

making a $2,600 contribution to KFC on March 2,2015). 

• Neidier the Candidate nor KFC pledged future receipts as security for the 

loan, or provided the bank an assignment to access ^ds in a committee 

account at another depository institution. A loan may be considered made on 

a basis that assures repayment if the lending institution has obtained a written 

agreement whereby the Candidate or political committee receiving the loan 

has pledged future receipts such as public financing payments, contributions 

or interest income or the lender obtains an assignment from the Candidate or 

political committee to access funds in a committee account at another 

The guarantor owned the collateral. 
depository institution. FANB did not receive from either the Candidate or 

KFC a pledge of future receipts or an assignment to access fiiiids in KFC's 

account at another depository institution. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed the loan issue with KFC representatives, 

including the reporting of the loan on Schedules A, C and C-1. The representatives 

indicated that the bank planned to draft a letter indicating that bank offrcials knew the 

loan would be repaid promptly and asked if this would be sufficient. The Audit staff 

stated that this letter would be taken into consideration but encouraged them to provide 

documentation regarding the assurance of repayment requirements. Prior to the exit 

conference, KFC provided a letter from the Vice President of FANB confirming the 

details of the loan. This was a part of the documentation examined above in Section A. 

In response to the exit conference, KFC amended its reports to correctly disclose the loan 

on Schedules A, C and C-1. 

The Audit staff recommends that, within 30 calendar days of service of this report, KFC 

demonstrate the loan was made in the ordinary course of business and was made on a 

basis that assured repayment. 

Finding 2. Receipt of Contributions that Exceed Limits 

Summary 

Based upon a review of loans received and contributions from individuals, the Audit staff 

identifi^ contributions totaling $75,100 that exceeded the limit. This consisted of a 

contribution made in connection with a loan received ($49,900) and contributions from 

individuals ($25,200). KFC untimely resolved excessive contributions from individuals, 

totaling $25,200. The Audit staff recommends that KFC provide documentation 

demonstrating that the contributions were not excessive or, if excessive, were resolved in 

a timely manner. The Audit staff further recommends KFC provide any additional 

comments it deems relevant to the matter. 

Legcd Standard 

A. Authorized Committee Limits. An authorized committee may not receive more 

than a total of $2,700 per election from any one person. 52 U.S.C §30116; 11 CFR 

§§110.1(a) and (b) and 110.9. 

B. Contribution. A gifr, subscription, loan (except a loan made in accordance with 11 

CFR §§ 100.82 and 100.83), advance, or deposit of money or anything of value made 

by any person for the purpose of influencing any election for federal office is a 

contribution. The term loan includes a.guarantee, endorsement, and any other form of 

security. A loan that exceeds the contribution limitations of 52 U.S.C. 30116 and 11 

CFR part 110 shall be unlawful whether or not it is repaid. A loan is a contribution at 

the time it is made and is a contribution to the extent Aat it remains unpaid. The 
aggregate amount loaned to a candidate or committee by a contributor, when added to 

other contributions from that individual to that candidate or coimnittee, shall not 

exceed the contribution limitations set forth at 11 CFR part 110. A loan is a 

contribution by each endorser or guarantor. Each endorser or guarantor shall be 

deemed to have contributed that portion of the total amount of the loan for which he 

or she agreed to be liable in a written agreement. 11 CFR § 100.S2(a) and (b)(l)-(3). 

C. Handling Contributions That Appear Excessive. If a committee receives a 

contribution that appears to be excessive, the committee must either: 

• Retum the questionable check to the donor; or 

• Deposit the check into its federal account and: 

• Keep enough money in the account to cover all potential refunds; 

• Keep a written record explaining why the contribution may be illegal; 

• Include this explanation on Schedule A if the contribution has to be • 

itemized before its legality is established; 

• Seek a reattributibn or a redesignation of the excessive portion, following 

the instructions provided in the Commission regulations (see below for 

explanations of reattribution and redesignation); and 

• If the committee does not receive a proper reattribution or redesignation 

within 60 days after receiving the excessive contribution, refund the 

excessive portion to the donor. 11 CFR §§I03.3(b)(3), (4) and (S) and 

II0.1(k)(3)(ii)(B). 

D. Joint Contributions. Any contribution made by more than one person, except for a 

contribution made by a partnership, must include the signature of each contributor on 

the check, money order, or other negotiable instrument or in a separate writing. A 

joint contribution is attributed equally to each donor unless a statement indicates that 

the funds should be divided differently. 11 CFR §I IO.I(k)(I) and (2). 

E. Reattribution of Excessive Contributions. The Coirmiission regulations permit 

committees to ask donors of excessive contributions (or contributions that exceed the 

committee's net debts outstanding) whether they had intended their contribution to be 

a joint contribution from more than one person and whether they would like to 

reattribute the excess amount to the other contributor. The committee must inform 

the contributor that: 

• The reattribution must be signed by both contributors; 

• The reattribution must be received by the committee within 60 days after the 

conunittee received the original contribution; and 

• The contributor may instead request a refund of the excessive amount. 11 CFR 

§110.I(k)(3). 

Within 60 days after receiving the excessive contribution, the committee must either 

receive the proper reattribution or refund the excessive portion to the donor. 11 CFR 

§§103.3(b)(3) and 110.1(k)(3)(ii)(B). Further, a political committee must retain 

written records concerning the reattribution in order for it to be effective. 11 CFR 

§110.1(0(5). 
Notwithstanding the above, any excessive contribution that was made on a written 

instrument that is imprinted with the names of more than one individual may be 

attributed among the individuals listed unless instructed otherwise by the 

contributor(s). The committee must inform each contributor: 

• How the contribution was attributed; and 

• The contributor may instead request a refund of the excessive amount. 11 CFR 

§110.1(k)(3)(B). 

F. Redesignation of Excessive Contributions. When an authorized candidate 

committee receives an excessive contribution (or a contribution that exceeds the 

•committee's net debts outstanding), the committee may ask the contributor to 

redesignate the excess portion of the contribution for use in another election. The 

committee must inform the contributor that: 

• The redesignation must be signed by the contributor; 

• The redesignation must be received by the committee within 60 days after the 

committee received the original contribution; and 

• The contributor may instead request a refund of the excessive amount. 11 CFR 

§110.1(b)(5). 

Within 60 days after receiving the excessive contribution, the committee must either 

receive the proper redesignation or refund the excessive portion to the donor. 11 CFR 

§§103.3(b)(3) and 110.1(b)(S)(ii)(A). Further, a political committee must retain 

written records concerning the redesignation in order for it to be effective. 11 CFR 

§110.1(1)(5). 

When an individual makes an excessive contribution to a candidate's authorized 

committee, the campaign may presumptively redesignate the excessive portion to the 

general election if the contribution: 

• Is made before that candidate's prim^ election; 

• Is not designated in writing for a particular election; 

• Would be excessive if treated as a primary election contribution; and 

• As redesignated, does not cause the contributor to exceed any other contribution 

limit. llCFR§110.1(b)(5)(ii)(B)(l)-(4). 

The committee is required to notify the contributor of the redesignation within 60 

days of the treasurer's receipt of the contribution, and must offer the contributor the 

option to receive a refund instead. 11 CFR § 110.1 (b)(S)(ii)(B)(S)-(6). 

Facts and Analysis 

A. Excessive Contribution bv Loan Guarantor 

1. Facts 

The Candidate obtained a bank loan totaling $50,000 on behalf of KFC from the First 

American National Bank (FANB) in Tupelo, Mississippi on May 14,2015. An 
associate of the Candidate guaranteed the loan and provided collateral for the loan in 

the form of two automobiles. KFC provided support from FANB showing that the 

automobiles had a combined National Automobile Dealers Association value of 

$52,925, as of the date of the loan. KFC repaid FANB in full for the loan on June 5, 

2015 (see Finding 1, Receipt of Apparent Prohibited Contribution - Bank Loan). Per 

11 CFR 100.52(a), a loan that exceeds the contribution limitations of 52 U.S.C. 30116 

and 11 CFR part 110 shall be unlawful whether or not it is repaid. The guarantor had 

already given $2,600 towards the special run-off election held on June 2,2015. 

Therefore, Ae excessive portion of the loan amount was $49,900 ($50,000 less $100 

remaining of the $2,700 contribution limit for the special run-off election). A daily 

cash analysis performed by the Audit staff indicated KFC would have had a negative 

cash balance from May 18,2015 through May 25,2015 without the loan. 

2. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed this excessive contribution with KFC 

representatives and provided a schedule of the excessive contribution identified. The 

representatives indicated that they would review the schedule. 

The Audit staff recommends that, within 30 calendar days of service of this report, 

KFC provide documentation demonstrating that the guarantor did not make an 

excessive contribution totaling $49,900 while the loan was still outstanding and/or 

provide any comments it deems relevant to the matter. 

B. Excessive Contributions from Individuals 

1. Facts. 

During audit fieldwork, the Audit staff reviewed contributions from individuals to 

determine if any exceeded the contribution limit. The sample testing and 100% 

review of contributions not included in the sample population indicated that KFC 

received apparent excessive contributions totaling $25,200.^ All of the excessive 

contributions were made by check and were the result of KFC not resolving the 

excessive portion of contributions by timely forwarding a presumptive letter to its 

contributors informing them how their contribution had been redesignated or 

reattributed, with the offer of a refund.. 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter with KFC representatives at the exit conference 

and provided schedules of the apparent excessive contributions. The representatives 

indicated that they would review the schedule. 

* The sample eiror amount was projected using a Monetary Unit Sample with a 95 percent confidence level 

($2,600) plus the results of a 100% review of contributions not included in the sample population (ten 

errors totaling $22,600). The sample projection estimate of $2,600 could be as low as $488 or as high as 

$7,370. 
10 

In response to the exit conference, KFC provided copies of redesignation and 

reattribution letters, signed by the contributors, and untimely resolved all of the 

excessive contributions, totaling $25,200. 

The Audit staff recommends that, within 30 calendar days of service of this report, 

KFC demonstrate the excessive contributions were resolved in a timely manner 

and/or provide any additional conunents it deems relevant to the matter.