FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

January 20,20IS 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

Jpc©' From: Patricia C. Orrock ' 

Chief Compliance Officer 

Thomas E. Hintermistef~~'-V 

Assistant Staff Director 

Audit Division 

Kendrick Smith^^ 

Audit Manage^^ 

y 

Zuzana O. Paciou^^ 

Audit Manager 

By: Robert MorcombQ!^^ 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the Republican Party of 

Orange County (FederaI)(RPOC) (A11-23) 

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

Audit staff presents its recommendations below and discusses the fmdings in the attached Draft 

Final Audit Report (DFAR). The Office of General Counsel has reviewed this memorandum and 

concurs with the recommendations. 

Finding 1. Misstatement of Financial Activity 

The Audit staff determined that, in its 2009 disclosure reports, RPOC understated its 

receipts by $ 17,420 and understated its disbursements by $ 17,420. In response to the 

Interim Audit Report recommendation, RPOC filed amended disclosure reports for 2009 

that materially corrected the misstatement of receipts and disbursements. RPOC had no 

additional comments in response to the DFAR. 
The Audit staff recommends that the Commission find that RPOC misstated its financial 

activity for calendar year 2009. 

Finding 2. Reporting of Debts and Obligations 

For the period covered by the audit, RPOC did not report debts and obligations for 12 

vendors totaling $60,296 on Schedule D (Debts and Obligations). In response to the 

Interim Audit Report reconunendation, RPOC filed amended disclosure reports that 

materially disclosed the debts and obligations. RPOC had no additional comments in 

response to the DEAR. 

The Audit staff reconunends that the Conunission find that RPOC failed to disclose debts 

and obligations of $60,296 in its reports. 

Finding 3. Recordkeeping for Employees 

For the period covered by the audit, RPOC did not maintain monthly payroll logs or 

equivalent records, as required, to document the percentage of time each employee spent 

on federal election activity. For 2009 and 2010, RPOC did not maintain monthly logs for 

$187,281 in payroll. All of RPOC's payroll was reported on Schedule H4 (Payments for 

Allocable Expenses) and paid with allocated federal and non-federal funds during all the 

months covered by the audit. RPOC had no employees paid exclusively firom a nonfederal account. 

In response to the Interim Audit Report recommendation, RPOC stated that, for all future 

payrolls, it will maintain monthly payroll logs and document the percentage of time each 

employee spends on federal and non-federal election activity. RPOC had no additional 

conunents in response to the DEAR. 

The Audit staff recommends that the Commission find that RPOC did not maintain 

monthly payroll logs totaling $187,281, as required, to document the percentage of time 

each employee spent on federal election activity. 

Finding 4. Use of Levin Fund Transfers 

For the period covered by the audit, RPOC received transfers totaling $74,132 from the 

California Republican Party's (CRP) Levin account for reimbursement of voter 

registration expenses. These transfers were deposited into RPOC's Levin account. 

RPOC transferred $73,465 from its Levin account to its federal accounts as 

reimbursement for voter registration expenses. In accordance vdth 11 CFR 300.31(a), 

Levin funds expended must be raised solely by the committee that expends them. 

In response to Ae DEAR, legal counsel for RPOC (Counsel) requested an audit hearing 

before the Conunission to present RPOC's legal arguments concerning the use of Levin 

funds. During the audit hearing. Counsel presented the following arguments: 

1) Counsel contended that, under the Operation Bounty program, RPOC operated as 

an agent or vendor to CRP by providing a service (obtaining Republican voter 

registrations) for which it was compensated throu^ the Levin fimd transfers fi-om 

CRP. Counsel maintained that the very nature of the Operation Bounty program 
was designed to create a vendor relationship. Counsel stated that this relationship 

is no different than if CRP obtained a vendor (other than a local party committee) 

to perform such services. Counsel contended that CRP employs locd party 

corrmiittees because they are best equipped with the local knowledge of how to 

engage in voter registration activity. Counsel stated that RPOC was not 

performing the services as a mech^sm to raise money for its other political 

activities. Counsel also noted that the regulations do not prohibit the use of a 

local party committee as an agent of the State party. 

2) Counsel contended that, based on the informal advice provided to CRP relating to 

the transfers, RPOC believed there was no prohibition on its use of the Levin 

funds. 

3) Counsel noted that there was no evidence of the circumvention of the Levin fund 

limits or contribution limits by donors. 

4) Counsel stated that there is a vendor/non-vendor argument that must be 

considered by the Commission when determining whether RPOC's transfer of 

Levin funds to its federal accounts was permissible. Counsel admitted that, if 

RPOC is not considered a vendor to CRP, then it should not have transferred 

Levin funds to its federal account. 

5) Counsel stated that RPOC may have made an administrative error by depositing 

the funds it received from CRP in its Levin account. At one point during the 

discussion. Counsel contended that the funds should have been deposited into 

RPOC's federal operating account. However, after more discussion and 

consideration. Counsel stated that the funds may have to be deposited into a 

sep^te federal account and properly reported. 

Based on these contentions. Counsel does not believe this finding should be approved and 

enforced by the Coirmiission. Counsel reiterated that the detail nature of the C^ieration Bounty 

program, which he believed the Commission had reviewed at the state level, changes the nature 

of the transactions between CRP and RPOC fiom sornething that mi^t be questionable or even 

impermissible to a very straight forward vendor relationship. 

After considering Counsel's presentation during the audit hearing, the Audit staff maintains that 

RPOC was not permitted to use Levin funds transferred from CRP for payment of voter 

registration activities, and RPOC itself should have raised the federal and Levin component for 

this Federal Election Activity. 

The Audit staff recommends that the Corrunission find that RPOC improperly spent $73,465 on 

voter registration activities using Levin funds transferred fiom CRP. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 30 days 

of the Commission's vote. 

In case of an objection. Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 
Documents related to this audit report can be viewed in the Voting Ballot Matters folder. Should 

you have any questions, please contact Robert Moicomb or Kendrick Smith at 694-1200. 

Attachments: 

- Draft Final Audit Report of the Audit Division on the Republican Party of Orange County 

(Federal) 

- Office of General Counsel's legal analysis of the Draft Final Audit Report 

- Office of General Counsel's legal analysis of the Audit Division Recommendation 

Memorandum 

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

Audit Division on the 

Republican Party of Orange 

County (Federal) 

(January 1, 2009 - December 31, 2010) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee tluit 

is required to file 

reports under the 

Federal Election 

Campaign Act (the 

Act). The Commission 

generally conducts such 

audits when a 

committee appeals 

to have met the 

threshold requiremi^ 

for subst 

audit 

whethe: :• c 

co: complied 

with the 

prohibitii 

disclosure reqi 

of the Act. 

.ts 

Future Action ^ 

The Commission may 

initiate an enforcement 

action, at a later time, 

vtdth respect to any of 

the matters discussed in 

this report. 

About the Commil 

The Republican Party of^ 

committee 1 

information, see the I 

:(p.2) 

: County (Federal) is a local party 

California. For more 

iimittee organization, p. 2. 

Financi^Activity (p. 2) 

ntributions 

leral Accounts 

I II tures 

l)isburseiiifiii< 

I) . . 

I '.ii I. \. I'7 

(.1 -.1 1 I.- ILoans Repaid 

•I Hisbursements 

• Levin Receipts 

• Levin Disbursements 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Reporting of Debts and Obligations (Finding 2) 

• Recordkeeping for Employees (Finding 3) 

• Use of Levin Fund Transfers (Finding 4) 

$299,234 

81,000 

76,923 

230,078 

73,466 

6,205 

3,661 

$ 770,567 

$ 613,029 

149,571 

8,850 

6,205 

$777,655 

$74,132 

$ 73,465 

2U.S.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on the 

Republican Party of Orange 

County (Federal) 

(January 1, 2009 -• Dec ember 31, 2010) 

•i' 
Table of Contents 

Page 

Fart I. Background 

Authority for Audit 

Scope of Audit 

Commission Guidance 

Part II. Overview of Committee 

Conunittee Organization 

Overview of Financial Activity 

2 

3 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recomlaudations 

Finding 1. Misstatement ofHajmcial ActivilFinding 2. Reporting of De^^^l i > iligatio! 

Finding 3. Recordkeeping fo^Sm-' 

Finding 4. Use of Levin Fund 

-«• 

5 

7 

8 

9 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Republican Party of Orange County (Federal) 

(RPOC), undertaken by the Audit Division of the Fede^ 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 requited to file a report under §434. Prior to 

conducting any audit under this subsection, the Coi 

review of reports filed by selected committees to 

particular committee meet the threshold requiremi 

Act. 2 U.S.C. §438(b). 

lUst perform an internal 

the reports filed by a 

•• al compliance with the 

Scope of Audit 

Following Commission-approved proced-.--.-^, 

factors and as a result, this audit examined: 

1. the disclosure of individual ^^utors' 

2. the disclosure of disbursemen^^1t£.and obli 

3. the disclosure of expenses alia 

4. the consistency between 

5. the completene; .• 

6. the disclosure..|p' expen^i. ^i-i I 

7. other commm^i .Tatioi^' s.-.essary'tij il 

Audi .! evaluj-i:.: i..!v..srisk 

I name of ei •;••• > 

non-federal accounts; 

Commission (Siiiclancv 

Jiicst for Early Coiiiiii^ioii Cmii^eration of a Legal Question 

Purti^Lto the Com • -i. - Statement Establishing a Program for Requesting 

Consii^^on of Legal onsl^^ Commission," several state party committees 

unaffiliat^^^ RPOC n- ;. .-^ted ea^consideration of a legal question raised during an 

audit. Specu^^, the C» > -i^sion addressed whether monthly time logs under 11 CFR 

§106.7(d)(l) w^'-.. :rc.> ;.>|employees paid with 100 percent federal funds. 

The Commission c i. l||l. I -y a vote of S-1, that 11 CFR §106.7(d)(l), does require 

committees to keep a monthly log for employees paid exclusively with federal funds. 

Exercising its prosecutorial discretion, however, die Commission decided it will not 

pursue recordkeeping violations for the failure to keep time logs or to provide affidavits 

to account for employee salaries paid with 100 percent federal funds and reported as 

such. Finding 3, Recordkeeping for Employees, of this audit report does not include 

RPOC employees paid with 100 percent federal funds and reported as such. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration July 6.1982 

• Audit Coverage Januarv 1.2009 - December 31,2010 

Headquarters Tustin c —•omia 

Bank Information ' 

• Bank Depositories 

• Bank Accounts Two Levin and Eight 

Treasurer 

• Treasurer When \ • • i . . . . Mark W. Bucher"^^, 

• Treasurer During Period Covered by Au^j MarkW.Bucher % 

Management Information 

• Attended Commission Cam] lance 

Seminar >-

r 1 

• Who Handled Accounting a] 

Recordkeeping Tasks x: 

r- • ^ 

r 
Overview of Financial Activity 

(Audited Amounts) 

Caah-on-hand @ January 1,2009 S 6,092 

Receipta 

o Individual Contributions 299,234 

o Political Conunittee Contributions 81,000 

o Transfers from Affiliates 76,923 

o Transfers from Non-federal Accounts 230,078 

o Transfers from Levin Account 73,466 

o Loans Received 6,205 

o Offsets to Operating Expenditures 3,661 

Total Receipta i S 770,567 

Diaburaements 

o Operating Expenditures ^ ^^13,029 

o Federal Election Activity ••€ao,s7i 

o Contribution Refunds 

o Loans Repaid 

Total Disbursements 

Caah-on-hand @ December 31. 2HI ii 

Levin Cash-on-l 

Total Levin 

Total Levin Dial 

Jaiiiniry 1 

fiil« 

S 777,655 

(S 996)' 

$10 

S 74,132 

S 73,465 

Levin Caah-on-haro^ HI-I-I-MIIH-I U, 2011^ S677 

' RPOC overdrew its bank accounts in the amount of $996. On January 12,2011, RPOC's balance was no 

ionger overdrawn. 
4 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwdrk, a comparison of RPOC's reported financial activity with its bank 

records revealed a misstatement of receipts and dist 

RPOC understated its receipts by $17,420 and disbursen^ 

misstatements were due mainly to unreported 1 

and unreported in-kind contributions. In response i 

recommendation, RPOC amended its reports to m^^ailyi 

noted above. (For more detail, see p. S.) 

I for calendar year 2009. 

$17,420. The 

1 from non-federal accounts 

I Audit Report 

:-.-i the misstatements 

Finding 2. Reporting of De^s and Obligations 

Audit fieldwork indicated that RPOC failed '.o u-rort debt^d obligj- u 

totaling $60,296 on Schedule D (Debts and:)'-! x. p'response to I 

Audit Report recommendation, 1^^ •- mended it^-p'-^'" ^ materially i 

debts and obligations. (Formore^^ 7.) 

Finding 3. 

During audit field 

payroll logs, as 

federal election 

required was $187,; 

fedei I.' • i>-. I. 

ivities 

on, 

documer 

not maintain monthly 

ot^ii^^facn employee spent on 

amount oi^ayroll for which logs were 

^ • .ill disbursements as allocated between 

' ^vit that listed the time spent on federal 

iloyees. In response to the Interim Audit Report 

all future payrolls, it will maintain monthly 

of time each employee spends on federal and 

non-federal el^iinii .ictiv.-% (1 or more detail, see p. 8.) 

Finding 4. Ui|y^f Levin Fund Transfers 

During audit fieldwoi%^^ v \ :-w of Levin fund activity determined that RPOC received 

$74,132 from the Califo^ia Republican Party's Levin account for reimbursement of 

voter registration expenses. RPOC then transferred $73,465 from its Levin account to its 

federal accounts, as reimbursement for voter registration expenses. In accordance with 

11 CFR §300.31(a), Levin funds expended must be raised solely by the committee that 

expends them. In response to the Interim Audit Report recommendation, RPOC 

disclosed $73,465 on Schedule D of its 2013 November monthly report as a debt to its 

Levin account. (For more detail, see p. 9.) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieidwork, a comparison of RPOC's reported financial activity with its bank 

records revealed a misstatement of receipts and disbursements for calendar year 2009. 

RPOC understated its receipts by $17,420 and disbursement^y $17,420. The 

misstatements were due mmnly to unreported transfers t^k^|fom non-federal accounts 

and unreported in-kind contributions. In response • t^^rim Audit Report 

recommendation, RPOC amended its reports to n.. .- ^^mrect the misstatements 

noted above. 

Legal Standard 

A. Contents of Reports. Each report mii-i • -. .-se: 

• the amount of cash-on-hand at the I-. • • .i i g andmdof the , period; 

• the total amount of receim^ : the n* ^ ^^d for the cal^^ year; 

• the total amount of disbi^.: :.-Ats for the r^ g period and for the'^alendar 

year; and ' 

• certain transactions that rei: •• i: on S^^e A (Itemized Receipts) or 

Schedules i/.-d Oisl- iI ^ (2),(3), (4)and(5). 

B. Definition oj^iiiiirihuliiiii. Gift,si!b ^^^ance or deposit of money. 

• a gift, subS^toion, loi-:. idvance • . t of money or anything of value made 

by any persoi^ | ii g any election for Federal office is a 

> i.-l I. '. ^^iff^nd contributions, 

e provisidS^^y gi- • I ror servi^^^thout charge or at a charge that is less 

•an the usual ^^^mori -. for such goods or services is a contribution. 11 

}100.52(a)%: •). ' 

Facts and ;^alysis 

A. Facts 

During audit fieldwc . r.-.irisonofRPOC's reported financial activity with its bank 

records revealed a misst^ement of receipts and disbursements for calendar year 2009. 

The following chart details the discrepancies between RPOC's disclosure reports and its 

bank records. Succeeding paragraphs explain why the discrepancies occurr^. 
2009 Activity 

Reported Bank Records Discrepancy 

Beginning Casb-on-Hand 

^January 1,2009 $6,092 $6,092 $0 

Receipts $311,572 $328,992 ($17,420) 

Understated 

Disbursements $303,419 $320,839 ($17,420) 

Understated 

Ending Casb-on-Hand 

^ December 31,2009 $14,245 -|4^45 $0 

The understatement of receipts resulted fit)m the li i • -

• Under reporting of receipts -

• In-kind contribution, not reported • i^^pt 

• In-kind rent for December, not re] a receipt 

• Duplicate reported receipt (in-kind . •• iinbution) 

• Unexplained difference 

Net Understatement of Kirirfipts 

? 10,631 

10,000^ 

3,904 

The understatement of disburser .-IA 

• In-kind contribution, nol "iT-TiC 

• Disbursemen^.|^|,;eported 

• In-kind re^^w^^^i^^er, not 

• Disbursd^^^ over-i@jp|i^ed 

• Duplicate disb^ement ( 

fr< ::i I J s.»! .'wing. 

.• :i-c:i 

Net UnderstifU'intiii Ili^liiiisem^iN 

ontribution) 

$ 10,000 

9,382 

3,904 

(866) 

(5,000) 

S 17.42Q 

B. .(bivriiii \iiilii l||P"ri Xmlii Hiti limmendation 

Af'^pxit confereno^^jB provi^ < >OC's treasurer with workpapers 

detaf^^^lbe misstatei^ fbe^ er asked general questions regarding the 

reporting^i .i.-ments. 

The Interim \'MHReport i.. 

correct the miss^jti. j:it i • ' 

lended that RPOC amend its disclosure reports to 

ipts and disbursements for 2009. 

C. Committee Respdii^i- in Interim Audit Report 

In response to the Interirn Audit Report recommendation, RPOC amended its reports to 

materially correct the misstatements. 

^ This was a partial payment for a fiindraising event. 

* RPOC originally reported this as a loan and repayment. It was later reported as an in-kind contribution. 
I Finding 2. Reporting of Debts and Obligations 

Summary 

Audit fieldwork indicated that RPOC failed to report debts and obligations for 12 vendors 

totaling $60,296 on Schedule D (Debts and Obligations). In response to the Interim 

Audit Report recommendation, RPOC amended its reports to materially include these 

debts and obligations. 

Legal Standard 

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

and nature of outstanding debts and obligations unti 'i il^^jts are extinguished. 

2 U.S.C. §434(b)(8) and 11 CFR §§ 104.3(d) and lO-'- ! K--). 

B. Separate Schedules. A political committee mi 

owed by and to the committee with a state: ..-.: 

conditions under which each debt and obi 

11 CFR §104.11(a). 

C. Itemizing Debts and Obligations. 

• Once it has been outstandin ys from 

must be reported on the ne> adv scheduli 

• A debt exceeding $500 mw 

the debt was incurred. IK '• { 

schedules for debts 

and 

inguished. 

Facts and Analysis 

A. Facts 

During audit fieldwol 

repot 

to l;^^^6rs'f3@i^,$60^' 

$48^6 was incurre'd^|u;ing t 

perioS^d remained oi 

noted tlm^OC did dis 

period. Hd'^fir, the debl 

in the debt aid'^ts reporl • 

sd, a debt ofl^O or less 

covers die date on which 

bursement records and disclosure 

. This review identified debts owed 

.itRPO^ report on Schedule D. Of these debts, 

it per * 1,660 was incurred prior to the audit 

the beginning of the audit period. It should be 

iebts^^^d to some of these vendors during the audit 

unts i^tified by the Audit staff above were not included 

B. Interim Audit A \udit Division Recommendation 

At the exit conferenc^^'! \ i^'it staff discussed the reporting of debts and obligations 

with RPOC's treasurer and provided schedules detailing the transactions requiring 

disclosure. The treasurer had no comments on this matter. 

The Interim Audit Report recommended that RPOC amend its disclosure reports to 

correctly include debts and obligations of $60,296 on Schedule D. 

C. Committee Response to Interim Audit Report 

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

materially include these debts and obligations. In addition, RPOC stated that it has 

tightened procedures for reporting accounts payable. RPOC also added that staff and 
Urii :.s .. 

board members have been informed that all its obligations need to be reported to the 

treasurer at the time they are incurred. 

Finding 3. Recordkeeping for Employees 

Summary 

During audit fieldwork, the Audit staff determined that RPOC did not maintain monthly 

payroll logs, as required, to document the percentage of time each employee spent on 

federal election activity. For 2009 and 2010, the amount of payroll for which logs were 

required was $187,281. RPOC reported these payroll disbursements as allocated between 

federal and non-federal funds. 

After audit fieldwork, RPOC provided an affidavit 

election activities for each of its employees. In rei 

recommendation, RPOC stated that, for all 

payroll logs and document the percentage 

non-federal election activity. 

each emplo; 

time spent on federal 

Interim Audit Report 

maintain monthly 

[ids on federal and 

Legal Standard 

Maintenance of Monthly Lo 

percentage of time each employ 

Allocations of salaries, wages, i 

• Employees who spend 25 

month on 

or be all 

• Emplo; 

month 

• Emi 

ty commit -! kvjp a monthly • ^ the 

i3'i- u-!- a federal election. 

Its are li: t's -indertaken as follows: 

the -. •-r^rasated time in a given 

eithe^pm the federal account 

. I. ent o. 'i ..fmpensated time in a given 

be paid only from a federal account; and, 

isated time in a given month on 

y with funds that comply with State 

Facts and An8d3r8iH 

A. Facts ^ I 

During fielc'.^ reviewed payroll disbursements totaling $ 187,281 

RPOC did not m^s^n • • pnthly payroll logs or equivalent records to document the 

percentage of time • l*' »yee spent in connection with federal election activity. 

These logs are required • • -. ument the proper allocation of federal and non-federal 

funds used to pay employee salaries and wages. This entire amount ($187,281) 

represents payroll disbursements allocated between federal and non-federal funds during 

the audit period. RPOC had no employees paid exclusively from a non-federal account. 

RPOC's staffrng consisted of eight individuals all of whom were hired via an 

employment company. In its reports, RPOC disclosed the purpose of the payroll 

expenditures as "Leased Employees." In addition, RPOC included a statement in its 

' This total does not include payroll for employees paid with 100 percent federal fends (see Part I, 

Background, Commission Guidance, Request for Early Commission Consideration of a Legal Question, 

pagel). 
reports noting that the time spent on federal election activity and federal campaigns was 

tracked on a monthly basis and no employee spent 25 percent or more of their 

compensated time on federal election activity. RPOC did not maintain a monthly time 

log to support its statement above and as required by 11 CFR § 106.7(d)(1). 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference and during audit fieldwork, the Audit staff discussed the payroll 

recordkeeping matter with RPOC's treasurer. At the exit conference, the treasurer 

provided an affidavit from RPOC's chairman that listed the time spent on federal election 

activities for its employees. This document, however, did not resolve the recordkeeping 

finding because RPOC provided the affidavit only after c-i iv -lotified of the 

recordkeeping requirement during the audit. 

j|i-ii:if !> !i rolls, RPOC implement a 

: each employee 

The Interim Audit Report recommended that, for i 

plan to maintain monthly payroll logs to track tbe.j 

spends on federal election activity. 

C. Committee Response to Interim AuSii Kvport 

In response to the Interim Audit Report rec- i- -•.-.i-tidation,^^OC state : ili.^ for all future 

payrolls, it will maintain monthh^yroll logs aS^. ^ the percenta^^time each 

employee spends on federal and^^i .eral elect , y. RPOC stated Twt it will 

document the amount of hours s^^ -1 il and n^'i.-iL-ral election activity on a 

semi-monthly basis in a sp 

I Finding 4. Us 

Summary 

During audit fieldwol 

$74,1^ 

Taccounts, 

11 C"^ 

exj 

disclosed 

Levin accoun' 

ivity determined that RPOC received 

account for reimbursement of 

$73,465 from its Levin account to its 

iistration expenses. In accordance with 

must be raised solely by the committee that 

Audit Report reconunendation, RPOC 

013 November monthly report as a debt to its 

Legsd Standard 

A. Expending of Lei^fi^unds. Levin funds expended or disbursed by any State, 

district or local committee must be raised solely by the coimnittee that expends or 

disburses them. Consequently, funds from national party committees, other State, district 

and local committees and Federal candidates or officeholders, may not be accepted as 

Levin funds. 11 CFR §§300.31(a) and 300.34(b). This includes any entity dir^y or 

indirectly established, financed, maintained or controlled by any national. State, district 

or local conunittee of a political party. 2 U.S.C. §441i(b)(2)(B)(iv). 

B. Levin Fund Transfers. A State, district, or local committee of a political party must 

not use any Federal funds transferred to it finm or otherwise accepted by it from any 

other State, district, or local conunittee as the Federal component of an expenditure or 
10 

disbursement for Federal election activity under 11 CFR §300.32. A State, district, or 

local committee of a political party must itself raise the Federal component of an 

expenditure or disbursement tdlocated between federal funds and Levin funds under 11 

CFR §§300.32 and 300.33. 11 CFR §300.34(a). 

Levin funds must be raised solely by the State, district, or local committee of a political 

party that expends or disburses the funds. A State, district, or local committee of a 

political party must not use as Levin funds any funds transferred or otherwise provided to 

the committee by any State, district, or local committee of a political party of the national 

committee of any political party. 11 CFR §300.34(b). 

Facts and Analsrsis 

A. Facts 

During the audit period, RFOC made 23 transi 

account to its federal accounts and reported 

Levin Funds Received for Allocated F( 

expended by RPOC' ($73,465) were recei^ 

Levin account, which transferred $74,132 to 

While there is no prohibition onLevin funds to local party comm 

local committees using funds tra 

or Levin shares of disbm|^ents all 

RPOC did not me;- . .>.nt 

committee that e^pe id's or'^l" : ies the 

'' Levin 

ansfers on^pglule HS (Transfers of 

on Activity). the Levin funds 

the California « :• Party's 

• I.» ' iccount. ^ 

mia B : • 'h ••. I' irty (CRP) transltrring 

11 CFRl '• there is a prohibition on 

-ai'i i i< iimittee for either the federal 

be^ :T 1 fei— lli^evin fluids.^ As such, 

11-1.1. i^lScmu^^'raised solely by the 

B. Interim Audii Kv 

At the ent^^^^d exi' 

I 

Thj !•:.«: m Audi' .te:': 

exj-e Levin funds, 

refund ii^^\. - jcount 

refund. 

\iiiiit Divisiiiii Ri-fommendation 

A i.!>. ff discussed this matter with RPOC's 

is matter. 

led tl- : 't 'OC demonstrate that it solely raised the 

ion, it was recommended that RPOC 

5 frd^lts federal account and provide evidence of this 

C. Committee ]ti-s|i«i^s^ii interim Audit Report 

In response to th.-1• • . Report recommendation, RPOC added the Levin fund 

transfers ($73,465) to r^^hedule D on the 2013 November monthly report, as a debt 

owed to its Levin account.' 

However, RPOC contends that the Commission should not accept this finding. RPOC 

stated that it is a vendor to CRP and its agent in conducting voter registration activities in 

' RPOC had a beginning cash balance of SIO in its Levin account that was not transferred from the 

California Republican Party. 

^ This nutter was addressed in a Request for Commission Directive 69 Guidance involving the Democratic 

State Central Committee of California (LRA #819) dated April 22,2011. 

' As of April 30,2014, this amount remains outstanding on Schedule D and the reported cash-on-hand 

balance is S3,802. 
11 

Orange County. RPOC noted that it has operated under the CRP's "Operation Bounty" 

agreement by which RPOC is compensated by the CRP on the basis of valid Republican 

voter registrations it obtains and which the CRP verifies as valid voter registrations 

throughout each election cycle. RPOC stated that, for the 2010-2011 election cycle, this 

included registrations obtained outside the Federal Election Activity (PEA), Type II' 

period, as well as, registrations obtained during the PEA, Type II period. RPOC stated 

that it received consideration in the form of payment per valid registration to defray its 

cost in obtaining, processing, verifying and submitting the voter registrations to CRP 

through the Operation Bounty program. RPOC contends that without the Operation 

Bounty reimbursement, it would be less likely and able to conduct effective voter 

registrations using the volunteer resources of Republican v^mteer organizations, groups 

and activists. Further, RPOC stated that the Operation program is a bona fide 

party building program, which engages Republican 

Republican activists in voter outreach, voter 

Republican identification and brand in the commu^" It 

was not able to utilize the RPOC as its agent 

alternatives, such as commercial vendors, do not offer the 

benefits that the RPOC-CRP relationship pi^ptes. 

groups and individual 

spreading the 

added that if the CRP 

Id have to seek 

party building 

RPOC contests whether this fi: 

statutory and constitutional groi 

non-federal funds transferred by 

reimburse it's federal account fo 

outside the PEA, Typ^ period 

§300.32(b)(l)(i). AAmtc. 1 

prohibited from 

political party 

period under 11 

should be • -p: 

OC stati 

I* e Coimnissii^m both 

- "ot prohibited from using 

mmittee of a political party to 

i-egistration conducted 

ition 11 CPR 

ditical party is not 

district committee of a 

ring the PEA, Type II 

In c(mi:i--:e:i. K1'@C st 

Im1 

EIW. Alt 

U.S.C7^&(b)(2)(iv)(r 

protectioh^-^^e of the Pc 

RPOC beliem^s would i 

engaging in vm 

with its contract' 

to other vendors that! 

funds. 

Id allow it to accept and use Levin 

}ugir6fg(i|tion Bounty as a matter of contract and 

I noted mt the Commission should not enforce 2 

I such enforcement would violate the equal 

; to the United States Constitution. 

I against a political party and its members for 

slitical activity using Levin funds received in cormection 

RPOC further added that such a decision would not apply 

I to engage in voter registration activity payable with Levin 

' The Audit staff believes RPOC is actually referring to FEA, Type I. These are voter registration 

activities conducted by a state or local political party committee within a period starting 120 days before 

the date of a scheduled federal election and ending on the date of the election. The FEA, Type I periods 

were 2/08/10 - 6/08/10 for the 2010 OA Primaiy election and 7/OS/lO -11/02/10 for the 2010 General 

election. 
- U'lih. ... 

12 

RPOC stated that guidance provided by the Commission's Reports Analysis Division and 

the CRP Final Audit Report of the Commission both confirm payments to local 

committees for voter registration activities were within the statute and the regulations. 

The Audit staff does not dispute this fact. CRP transferred Levin funds to RPOC, which 

is not prohibited by the Act. However, RPOC used the transferred funds for Type I PEA 

- voter registration activities, which is not permitted under 11 CFR §300.31(a). This is 

the distinction between the activities performed by these two committees. 

Based on the above, the Audit staff considers that RPOC improperly spent $73,465 on 

Type I PEA - voter registration activities using Levin funds transferred from CRP. . 

J-

% 
FEDERAL ELECTION COMMISSiON 

WASHINGTON. D.C. 20463 

JAN 13206 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law ^ ' 

Lorenzo Holloway ' 

Assistant General Counsel 

Compliance Advice 

Margaret J. Forman ' 

Attorney ^ 

SUBJECT: Audit Division Recommendation Memorandum on the Republican Party of Orange 

County (Federal) (LRA 909) 

I. INTRODUCTION 

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

Memorandum C'ADRM") on the Republican County of Orange County (Federal) ("RPOC"), the 

RPOC's response to the Draft Final Audit Report C'DFAR"), and written submissions made by 

RPOC prior to the Audit Hearing.' We generally concur with the ADRM, but we have specific 

comments about the Levin Funds issue in Finding 4 of the DFAR, as discussed in the ADRM. 

' While this memorandum provides comments on the ADRM and RPOC's submissions for the Audit 

Hearing, we recommend that you attach this memorandum and our memorandum commenting on the DFAR to the 

ADRM. This will assist the Commission in understanding the legal issues raised in the ADRM and RPOC's response 

to the DFAR. 
LRA 909 Republican Party of Orange County 

ADRM Legal Comments 

Page 2 of3 

II. A STATE OR LOCAL PARTY MAY NOT AVOID THE REQUIREMENTS OF 

THE LEVIN FUNDS STATUTE, WHICH PROHIBITS THE USE OF LEVIN 

FUNDS TRANSFERRED FROM ANOTHER STATE OR LOCAL PARTY, BY 

ASSUMING STATUS AS A VENDOR 

In Finding 4 of the DEAR, the Audit Division concludes that RPOC did not comply with 

52 U.S.C. § 30125(b)(2)(B)(iv) because the RPOC used $73,465 in Levin funds for federal voter 

registration (FEA Type 1) activities that were raised by the California Republican Party (CRP). 

The RPOC, however, maintains that a contractual agency relationship between RPOC and CRJP 

precludes the application of any statutory restrictions on the use of Levin funds raised by another 

state party because the RPOC was purportedly acting as a vendor. RPOC Supplemental 

Pre-Hearing Submission to Cotmnission, August 13,2014. RPOC maintains that the Levin funds 

received from CRP were not "jointly raised," nor were they used as Levin funds. Rather, they 

maintain that the funds were placed in RPOC's Levin fund account purely as an "administrative 

error." Id. The CRP transferred the Levin funds from its Levin funds account to the RPOC's 

Levin funds account. The RPOC then transferred the funds into its federal account to pay for 

federal voter registration activity (FEA Type 1 activity). RPOC maintains that while die funds 

admittedly should have been deposited into the federal account at the outset, it should not be 

penalized for this error. Id. Finally, the RPOC contends that it should not be prohibited fhim 

engaging in FEA Type 1 activity, and being compensated for this activity by the CRP. Id. 

We agree that the RPOC should not be prohibited fixim engaging in FEA Type 1 activity, 

and that it can be compensated by the CRP for this activity. The RPOC, however, may not use 

Levin funds raised by CRP to pay for this activity. The Federal Election Campugn Act ("Act") 

explicitly requires that a state party only use only Levin funds raised by itself for FEA purposes. 

52 U.S.C. § 30125(b)(2)(B)(iv); 11 C.F.R. §§ 300.34,300.31(a). In this case, however, CRP 

transferred the funds at issue from its Levin account to RPOC's Levin account. 

If permitted, this type of transfer could allow contributors to "readily circumvent the 

$10,000 contribution limit on contributions to a committee's Levin account by making multiple 

$ 10,000 donations to various committees that could then truisfer the donations to the committee of 

choice." McConnell v. FEC, 540 U.S. 93, at 171-172 (2003). The RPOC, however, draws a 

distinction between a transfer that is closely drawn where the state party committee directs the 

local party committee to use the funds as an agent to further the goals of the state party committee, 

and a transfer where it benefits the local party committee to spend the transferred Levin funds as it 

desires on FEA activity. The RPOC places the transfer at issue in this case in the former category 

because it claims that aiiy benefit it received from the transfer was incidental. ^ RPOC 

Supplemental Pre-Hearing Submission to Commission, August 13,2014. 

' The Operation Bounty program was a generic contract drafted for use by party committees, volunteer 

organizations and candidate campaigns. Under the RPOC's logic, not only could the "vendor" analogy be applied to 

exclude state and political party committees fiom the explicit statutory prohibitions against using Levin funds 

transferred from another state or local party, but a candidate's authorized committee could also be viewed as an agent 

and vendor of the state party as well-iand could then also potentially be exempt ftom explicit statutory provisions. 

The Operation Bounty program applies to county political committees, volunteer organizations and candidate 

campaigns. See CRP Operation Bounty Program. Under the RPOC's logic, a county political committee is a vendor 

and could opoate as such to the preclusion of an explicit statutory prohibition from using Levin funds raised by 
LRA 909 Republican Party of Orange County 

ADRM Legal Comments 

Page 3 of3 

We disagree with this characterization, and we believe RPOC received more than an 

incidental benefit from the transfer and through its participation as a vendor in CRP's Operation 

Bounty Program. The Operation Bounty Program was designed to register votes. Registering 

voters is an activity that inherently benefits political parties at all levels, including the Federal, 

state, and county level. By registering partisan voters in its county, RPOC benefited itself and its 

county and locd candidates by increasing the number of available voters to vote on matters of 

interest to the county party. Further, the Operation Bounty Program specifies that "Maximizing 

the membership in the Republican Party in California is a piimaiy responsibility of the California 

Republican Party, county committees, and Republican volunteer groups." CRP Operation Bounty 

program, (Revised Sept. 22,2009) at 1. Therefore, a county committee, such as the RPOC, has a 

"primary responsibility" to engage in the conduct of the contract. Id. 

As an alternative argument, the RPOC asserts that the RPOC is an agent managing 

subagents on behalf of the CRP, and merely handling the CRP's Levin fimds for the purposes of 

the Operation Bounty program. See RPOC Supplemental Submission to Commission for Audit 

Hearing (Nov. 13,2014), at 3. However, the Operation Bounty program indicates that the 

payment was made to the RPOC for the RPOC's use, rather than as a transfer of the CRP's money 

through the RPOC to individuals. The CRP disclosed these transfers as "PAYMENT FOR 

REGISTERING VOTERS" and the Operation Bounty program provides that "CRP bounty checks 

will be made payable to the county committee ... specified in the bounty agreement and funds may 

be used for any lawful purpose by said entity." CRP Operation Bounty program at 4, RULE #10. 

another political party committee. Under the same logic, a candidate's authorized committee, acting as a vendor, 

could also receive Levin funds, potentially containing corporate contributions that would otherwise be in violation of 

the statutory prohibition against receiving corporate contributions, directly into its Federal account to pay for voter 

registration activities as well.