FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

August 30,2012 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

From: Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister^^ i 

Assistant Staff Director ! 

Audit Division j 

Marty Kuest 

Audit Manager 

By: Lezhi frving /, I 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the Washington State 

Republican Party (AlO-02) 

Pursuant to Commission Durective No. 70 (FEC Dkective on Processmg Audit Reports), 

the Audit staff presents its recommendations below and discusses the fuidings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. I 

Finding 1. Misstatement of Financial Activity I 

In response to the interim audit report, WSRP materially complied with the Audit 

staff reconunendation. The Audit staff recommends that the Coinmission find that 

Washington State Republican Party (WSRP) misstated its financial activity for 

calendar years 2009 and 2010. 

WSRP requested an audit hearing for the Commission to consider whether an 

unreported disbursement of $43,921 made on August 5,2010, and a corresponding 

unreported receipt in the same amount on August 12,2010, should have been 

included in the misstatement total. WSRP explained that the unreported 

disbursement was a payment mistakenly made for non-federal activity from the 
federal account and the unreported receipt was the subsequent reimbursement from 

the non-federal account. Both transactions occurred in the same reportmg period. 

As such, WSRP stated its belief tiiat these offsetting transactions were obvious 

errors and tiiat it should not be requured to include these transactions on its 

disclosure report. Federal regulations requure that a committee accurately report 

and disclose all activity that passes through their federal bank account(s). The 

regulations also make no provision or exception for transactions made in error. 

The Audit staff maintains that the activity be reported and uicluded as part of the 

WSRP activity tiiat was misstated for 2010. 

Finding 2. Misstatement of Financial Activity - Levin Fund 

In response to tiie interim audit report. WSRP materially complied with the Audit 

staff recommendation. In response to the DFAR, WSRP made no comment on 

tiiis finding. The Audit staff recommends tiiat the Commission find tiiat WSRP 

misstated its Levin fund financial activity for calendar years 2009 and 2010. 

Finding 3. Reporting of Debts and Obligations 

In response to the interim audit report. WSRP materially complied witii the Audit 

staff recommendation. In response to tiie DFAR. WSRP made no comment on 

this finding. The Audit staff reconunends tiiat the Coimnission find that WSRP 

failed to report debts to vendors for calendar years 2009 and 2010. 

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

30 days of the Conunission'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 Lezhi Irving or Marty Kuest at 694-1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on the Washington State 

Republican Party 

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

Audit Division on the Washington 

State Republican Party 

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 that is 

required to file reports under 

the Federal Election 

Campaign Act (the Act). 

The Coinmission 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 ie(|iiirements of 

the Act. / 

Future Action 

The Coinmission may 

initiate an enforcement 

action, at a later time, wilh 

respect to any of the mattes 

discussed in this report. 

About the Conunittee (p. i) 

The Washmgton State Republican Party i^ a state party committee 

headquartered in Bellevue, Washington. For more information, 

see tiie chart on the Comminee Orgarii/aiion, p. 2. 

Financial Acl^i^ty (p. 2) 

• Federal Re(^gP V ^ 

o Contribuuoii^ iioinIn(»^als ^ $1,844,135 

o Contributions I roi 11 i\iliticai Coinmittees 900,961 

o l^sfers from A11 il i:iied and Other 

Political Committees ^ 527.887 

from Non-k-deral and Levin 

JF 462,069 

u» ^ 44.356 

eceipt^ $3,779,408 

rsements 

Operating T:.\ penditures $3.753,148 

sfers to .M'filiated and Other Political 

s 32,334 

Contributions to Otiier Committees 27,900 

ral Election Activity 103,626 

funds/Other Disbursements 23,837 

lal Federal Disbursements $3,940,845 

• Levin Receipts $15,000 

• Levin Disbursements $32,000 

Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Misstatement of Fmancial Activity - Levm Fund (Findmg 2) 

• Reportmg of Debts and Obligations (Finding 3) 

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

Division on the 

Washington State Republican Party 

January 1, 2009 - December 31, 2010 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Conunittee 

Committee Organization ' 2 

Overview of Financial Activity ^ 2 

Part III. Summaries 

Findings and Recommendations ^ 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatementof Financial Activity ^ 5 

Finding 2. Misstatement of Financial Activity - Levin I-una 8 

Finding 3. Reporting of Debts and Obligations 10 
Part I 

Background 

Authority for Audit 

This report is based on an audit of tiie Washington State Republican Party (WSRP), 

undertaken by tiie Audit Division of the Federal Election Commission (tiie Commission) 

ui accordance with tiie Federal Election Campaign Act of 1971, as amended (the Act). 

The Audit Division conducted tiie audit pursuant to 2 U.S.C. §438(b), which permits tiie 

Cominission to conduct audits and field investigations of any polilicai committee that is 

requured to file a report under 2 U.S.C. §434. Prior to conducting aii\ ^udit under tiiis 

subsection, the Commission must peiform an intemal revi^ uf rej)orts filed by selected 

committees to determine whetiier the reports filed by a p^Kular committee meet the 

threshold requirements for substantial compliance wilh th^Act. 2 U.S.C'. §438(b). 

Scope of Audit ^ > 

Following Commission-approved procedures^he Audit stalT evaluated varioiifrisk 

factors and as a result, this audit examined: ^ ^ 

1. the disclosure of individual contributors' occupaiion ami name of employer; 

2. the disclosure of disbursements, dfebis and obligations; ^ 

3. the disclosure of expenses allocated between federal and non-federal accounts; 

4. the consistency between reported fi^c s and bank records^ 

5. the completeness of records; and 

6. other coinmittee operations necessary ti^e review. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration October 14,1975 

• Audit Coverage January 1.2009 - December 31.2010 

Headquarters Bellevue, Washington 

Bank Information '. 

• Bank Depositories Two ' ^ 

• Bank Accounts Eleven Federal, r*ine Non-federal, and One 

Levin • ^\ 

Treasurer . ^ 

• Treasurer When Audit Was Conducted Colleen Morse 

• Treasurer During Period Covered by Audit ^Ed Mitchell (l-ebmary 19, 2005 - July 18, 

200^) Colleen .Morse (July 1^2009 -

Present) 

Management Information 

• Attended FEC Campaign Finance Sen iinar Yes ^ 

• Who Handled Accounting and % 

Recordkeeping Tasks % 

Paid SlalT ^ " 

r 
Overview of Financial Activity 

(Audited Amounts) 

Federal Cash-on-hand @ January 1,2009 $ 155,272 

o Contributions from Individuals 1,844,135 

o Contributions from Political Coinmittees 900,961 

0 Transfers from Affiliated and Other 

Political Committees 

527,887 

o Transfers from Non-federal and Levin 

Funds 

462,069 

\ 

o Other Receipts . 44.356 

Total Federal Receipts S3ji?,408 

o Operating Expenditures - ^ 3,7.S3,I48 

o Transfers to Affiliated and Otiier Political 

Committees 

. ^ 32.334 

o Contributions to Other Committees 27,900 

o Federal Election Activity ^ \ 103.626 Z' 

o Refunds/Other Disbursements 23.837 

Total Federal Disbursements $3,940,845 

Federal Cash-on-hand @ December 31, 

2010 ^ 

($6,165)^ 

Levin Cash-on-hand @ Jaiiuury 1.2009 $17,001 

Total Levin Receipts ^(fer 

Total Levin DisbursiHipnls 

$15,000 

!|>32,000 

Levin Cash-on-hand @ December 31.2010 $1 

Ending cash-on-hand was negative due to outstanding checks as of December 31,2010. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of WSRP's reported activity with bank records revealed a misstatement of 

its begiiming cash-on-hand and receipts for 2009 and a misstatemcil||Pf receipts, 

disbursements and endmg cash-on-hand for 2010. For 20W. WSRP miderstated 

beginning cash-on-hand by $30,321 and overstated receipts by S45.641. In 2010, receipts 

were understated by $697,155, disbursements were und^ated by S1,062,382 and ending 

cash-on-hand was overstated by $362,753. \ 

In response to the Interim Audit Report. WSRP filed amended reports that materially 

corrected the misstatements. (For more detail, sec p. 5.) . 

Finding 2. Misstatemenjt of Financial Activity - Levin 

Fund 

A comparison of WSRP's reported Levin acii\ it,\ with bank reeojdis revealed a 

misstatement of its begiiming cash-on-hmd :!iul diHbur>cment£S for 2009 and a 

misstatement of disbursements and endin^^^:on-hand for^OlO. For 2009. WSRP 

overstated begiimmg e.i^i-oii-haml by $32,^p^md overstated disbursements by $32,499. 

In 2010, WSRP understated diNbursements b^l5,000 and overstated ending cash-onhand by $12,500.-^ ^ 

In response lo ihc hiierim .\ndii Ropoii. WSI^^led amended reports that corrected the 

misstateI]$:nt^. (I-bi more detuil. ^^ee p. 8.)^ 

Filiding 3. Reporing of Debts and Obligations 

During audit fieldwork, thJ&udit staff identified debts to five vendors that WSRP failed 

to report in ealeml.n years M)9 and 2010. WSRP did not report debts totaling $361,838. 

In response to the liiicriili Audit Report, WSRP amended its reports to disclose these 

debts. (For more detail, see p. 10.) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summary 

A comparison of WSRP's reported activity with bank records revealed a misstatement of 

its beginning cash-on-hand and receipts for 2009 and a misstatem^t of receipts, 

disbursements and ending cash-on-hand for 2010. For 2009, >A;^^^understated 

beginning cash-on-hand by $30,321 and overstated receipts by $45,641. In 2010, receipts 

were understated by $697,155, disbursements were understlited by S 1,062.382 and ending 

cash-on-hand was overstated by $362,753. 

In response to the Interim Audit Report, WSRP filc^amended reports thth materially 

corrected tiie misstatements. ' v 

4 

Legal Standard ^ 

Contents of Reports. Each report nv^t disclose: 

• the amount of cash-on-hand at th&TK^giiiniiig and end of the reporting period; 

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

• the total amount of disbursements foitee repc^rting period aiul for the calendar year; 

and % 

• certain transaction.^ ihai ivijiiiic itemizai^n on Schedule A (Itemized Receipts) or 

Schedule B (Itemi/ed Disbursements). 2%S.C. §434(b)(l). (2). (3). (4) and (5). 

4 ^ 

Facts and Analysis w 

A. Facts V 

During audit fields oik, Ihe Audit sliffirfeconciled reported activity with bank records for 

200^and 2010. It determin^ thatWSRP misstated the begmnmg cash balance and 

receipts ioEi200^^ and rece^, disbursements and ending cash balance for 2010. The 

following chaits outline thsgfiscrepancies for the cash balances, receipts and -

disbursements Ibr each yesff The succeedmg paragraphs address the reasons for the 

misstatements. 
2009 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2009 

$124,951 $155,272 $30,321 

Understated 

Receipts $852,256 $806,615 $45,641 

Overstated 

Disbursements $970,577 $952,783 $17,794 

Overstated 

Ending Cash Balance 

@ December 31,2009 

$6,630 $9. KM $2,474 

1 Understated 

WSRP understated the begiiming cash-on-hand by $30.3M and did not explain tiie 

discrepancy, but it likely resulted from prior period di^^plEtncies. 

The overstatement of receipts resulted from the liillowing ^ 

• Reported transfers from Levin ($32,499) and ncm-fedtel accounts ^ ^ 

($30,691) tiiat were not supported by bank depo-its or i^ecks/debits 

by tiie transferring accounts ^ 

• Transfers from affiliated committee .nid non-federal,account 

not reported 

• Unexplained differences ^ ^ 

Net Overstatement of Receipts % 

$ (63,190) 

15,097 

2.452 

iSr45.64n 

2010 Commiliee .VciMty 

Reporled ir Bank Records Discrepancy 

Beginning Ca^h Balance sfi.o.U) 

@;^nuarv 1.2010 

$9,104 $2,474 

Understated 

l^eipis ^1^5,638 $2,972,793 $697,155 

Understated 

Disbursements j $1,925,680 $2,988,062 $1,062,382 

Understated 

Ending Casl: Batam e -

@ December 31.2010 

$356,588 -$6,165 $362,753 

Overstated 
The understatement of receipts resulted from the followmg: 

• Transfer from Levin accoimt not reported $ 3,000 

• Transfers from non-federal accounts not reported 109,078 

• Transfers from political committees not reported 487,215 

• Contributions from mdividuals not reported 93,337 

• In-kind contributions not reported as receipts 10,976 

• Reported transfer not supported by bank deposits (11,675) 

• Reported contribution not supported by bank deposit (5,000) 

• Unexplained differences 10.224 

Net Understatement of Receipts ^ $697.155 

The understatement of disbursements resulted from the following: 

• Payroll expenditures not reported $ 33,457 

• Operating Expenditures not reported \ 1,023,213 

• Transfers to political conimittees not report^ ^ 25,000 

• Contributions to other committees not rt-poi ted ' 10,000 

• Reported disbursements not supportedin diecks or u^ts TM (24,185) 

• Unexplained differences (5.103) 

Net Understatement of Disbi^rsements $1.062.382 

The majority of tiie $1,023,213 in expeiip[liiie.s not reportCil inelnucd costs associated 

with mail pieces provided by nine vend^s. mmling SSh2,966. 

The $362,753 overstatement of the ending casl^on-liaiul resulted from tiie misstatements 

described above. % ^ 

B. Interim Audit^ftcpurl & .\iiclit Division Recommendation 

Audit staff discussed this iiKiiier witii WSRP reni\-Nentatives at the exit conference. 

WSRP representatives ni.icle no eommciil on tins matter. 

The Inj^m Audit Report rccofSmeiided that WSRP amend its disclosure reports to 

cor^jOie misstatement.^ for both 2()0^and 2010, and amend its most recentiy filed 

report to CO! wxX the cash-on-hand Jvil.mce with an explanation that the change resulted 

from a prior period audit adjustment. 

Further, the Audii stal l' recommended that WSRP reconcile the cash balance of its most 

recent report to idenlifv any subsequent discrepancies that may affect the adjustment 

recommended by th^^udit staff. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, WSRP filed amended reports that materially 

corrected the misstatements. 

In addition, a WSRP representative explained that Audit staff should have treated a 

$43,921 disbursement from a federal account and a transfer of an identical amoimt from 

the nonfederal accoimt to the federal account- both of which were included as 

unreported in the Interim Audit Report ~ as reversmg transactions. These transactions 

mvolved a payment mistakenly made from a federal account for nonfederal activity and 
tiie subsequent reimbursement from the nonfederal account. WSRP included both 

transactions in the amended reports. 

I Finding 2. Misstatement of Financial Activity - Levin Fund 

Sununary 

A comparison of WSRP's reported Levin activity with bank records revealed a 

misstatement of its begiiming cash-on-hand and disbursements for 2009 and a 

misstatement of disbursements and ending cash-on-hand for 2010. For 2009, WSRP 

overstated beginning cash-on-hand by $32,499 and overstated disbursements by $32,499. 

In 2010, WSRP understated disbursements by $15,000 and overslaied^ending cash-onhand by $12,500. 

In response to the Interim Audit Report, WSRP filed am^ded re[loris that corrected the 

misstatements. \ 

Legal Standard ^ 

Contents of Levin Reports. Each report mu^disclose: 

• the amount of cash-on-hand for Levin fimds at the begjnniltg and end oilhc reporting 

period; 

• the total amount of Levin fund receipts and disburseim-iiis rincludmg allocation 

transfers) for the reporting period and for the calendar \«:iii: and 

• certain transactions that require itemi/aiioii on Schedule L-.-\ (Itemized Receipts of 

Levin Funds) or Schedule L-B (Itemi^^ Di.^bnrsciii^Mii -»df Levin Funds). 11 CFR 

§300.36 (b)(2)(B). 

Facts and An s 

A. Facts 

During aiitl|l fieldwork. tiie Xiidit statt reconciled reported Levin activity with bank 

record^ for 2009 and 2010. It deiciinined that WSRP misstated beginning cash-on-hand 

and^biirsements for 2009 .ind disl^lsements and ending cash-on-hand for 2010. The 

following charts outline the discrepiSicies for the cash balances, receipts, and 

disbursements lor each }ear. 'The succeeding paragraphs address the reasons for the 

misstatements. 

2009 Committee Activity 

Reported Bank Records Discrepancy 

Begiiming Cash Balance 

@ January 1,2009 

$49,500 $17,001 $32,499 

Overstated 

Receipts $0 $0 $0 

Disbursements $49,499 $17,000 $32,499 

Overstated 

Endmg Cash Balance 

©December 31,2009 

$1 $1 $0 
WSRP overstated tiie beginning cash balance by $32,499 and did not explam tiie 

discrepancy, but it likely resulted from prior period discrepancies. 

The overstatement of disbursements resulted when WSRP erroneously reported transfers 

of $32,499 to tiie federal account. WSRP also identified these transactions as an 

adjustment to tiie federal bank reconciliation (see Finding 1, page 5). These transfers 

appear to have been reported to correct the overstatement of cash-on-hand as of January 

1,2009. 

2010 Committee Activity A 

Reported Discrepancy 

Beginning Cash Balance 

@ January 1,2010 

$1 Ba^^ecords 

•"^ 

$0 

Receipts $12,500 T $15,000 $2,500 

^-^^^stated 

Disbursements $0 SI.5,000 $15,000 

Understated 

Ending Cash Balance 

@ December 31,2010 

SI2..501 $1 $12,500 

Overstated 

WSRP did not report a $15,000 transfer i%2ide to the lederpj^ccount. The $12,500 

overstatement of the ending cash balance r%^^d liom the misstated receipts and 

disbursements noted abio\ e. 

B. Interim Audif Report & -Vudit Division Il^^mmendation 

Audit staff discussed this imwcr \\ itii WSRP rfpresentatives at the exit conference. 

WSRP repr^eniativcs mad.- no comiheiii ou this matter. 

The^icriin Audit Repon reeommiMM^ that WSRP amend its disclosure reports to 

correct the misstatements ibi both JSD9 and 2010.^ 

C. Committee Response to interim Audit Report 

In response to the liitei im^\iulit Report, WSRP filed amended reports that corrected the 

misstatements. V 

^ WSRP has not reported any Levin activity for calendar year 2011. 
10 

Finding 3. Reporting of Debts and Obligations 

Summary 

During audit fieldwork, the Audit staff identified debts to five vendors that WSRP failed 

to report m calendar years 2009 and 2010. Debts totaling $361,838 were not reported. 

In response to the Interim Audit Report, WSRP amended its reports to disclose these 

debts. 

Legal Standard ^ 

A. Continuous Reporting Required. A political comniiii(|l must disclose the amoimt 

and nature of outstandmg debts and obligations until thq^e debi« uie extinguished. 

2 U.S.C. §434(b)(8) and 11 CFR §§104.3(d) and 104.11(a). 

B. Separate Schedules. A political committee nillst file separate sch«:diiles for debts 

owed by and to the committee witii a stateme^ explaiiiin^tiie circumstances ami 

conditions under which it incurred or extinguished each debt ^ d obligatioi|r 

llCFR§104.11(a). 

* 

C. Itemizing Debts and Obligations. ^ 

• Once it has been outstanding 60 days from the date incurred, a debt of $500 or 

less must be reported on the next^ularly scficduled i^ort. 

• A debt exceeding $500 must be dis||os^ in the report that covers the date on 

which tiie debt was inciiried. 11 CI'R ?104.11(l 

Facts and An 

A. Facts 

The Aiid^staff reviewed vendctr favoices and computer files containmg WSRP 

disbursements made in 200g andSlpi^Although WSRP paid the majority of invoices m 

a timel> manner, it carried outstandng balances with five vendors that were not disclosed 

as debts on Sehedule D (olbis and Obligations). The debts totaled $361,838.'^ 

B. Interim Aiidil Repo|pl& Audit Division Recommendation 

The Audit staff mlormcrwSRP representatives of this matter at the exit conference and 

provided schedules ^ciailmg the undisclosed debts for each reporting period. WSRP 

representatives made no conunent on this matter. 

The Interim Audit Report recommended tiiat WSRP amend its reports to disclose the 

debts and obligations addressed above. 

^ Each debt in this amount was counted once. In order for WSRP to correcdy file amended reports, a 

schedule was provided that includes the amount of each debt required to be reported for each reporting 

period. 
•"^tsandobligatiW ^^'"'fi'^d amended 

TMed reports disclosing the 

i