Draft Final 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 conmiittee for John 

Trent Kelly, Republican candidate for Ae 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 $ 567,830 

o Contributions from Political 

Committees 486,658 

o Candidate Loan 50,000 

o Other Receipts 420 

Total Receipts S 1,104,908 

Disbursements 

o Operatiiig 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 

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). 
Draft Final Audit iReport 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 

Overviewof 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 Linuts 7 
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 committee 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 n 

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 

O^rvieW of Financial Activity 

: (Audited Amounts) 

Cash-on-hand 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. 

John Trent Kelly (the Candidate) 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. In response to the 

Interim Audit Report recommendation, KFC stated that it believes the bank loan was 

made in the ordinary course of business in that it was secured by collateral, guaranteed by 

an individual and repaid within 30 days. KFC requested that the Conunission consider 

the totality of the circumstances and determine that the loan was made on a basis that 

assured repayment. (For more detail, see p. 4.) 

Finding 2. Receipt of Contributions that Exceed Limits 

During audit fieldwork, the Audit staff reviewed loans received and contributions from 

individuals to determine if wy exceeded the contribution limit. This review indicated 

that KFC received apparent excessive contributions totaling $75,100. This amount 

consisted of a contribution made in connection with a loan received ($49,900) and 

contributions from individuals ($25,200). In response to the exit conference following 

fieldwork, KFC untimely resolved excessive contributions from individuals, totaling 

$25,200. In response to the Interim Audit Report reconmiendation, KFC noted that the 

bank loan; was made in the ordin^ course of business in that it was secured by collateral 

and guaranteed by an individual. Additionally, KFC stated that while they realize errors 

were made, that the bank loan was repaid in 30 days and all errors were ultimately 

resolved. -KFC also provided, copies of redesignation and reattribution letters, signed by 

the contributors, which resolved the excessive contributions from individuals totaling 

$25,200. (For more detail, siee p. 7.) 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contribution -

Bank Loan 

Summary 

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

John Trent Kelly (the Candidate) 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. .In response to the 

Interim Audit Report recommendation, KFC stated that it believes the bank loan was 

made in the ordinary course of business in that it was secured by collateral, guaranteed by 

an individual and repaid within 30 days. KFC requested that the Commission consider 

the totality of the circumstances and determine that the loan was 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 Djcposit 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 in^e in the ordinary course of business if it bears the 

usual and custom^ interest rate of the lending institution for the category of loan 

inVoiyed; is made onu bwis which assures repayment; is evidenced by a written 

instruihent.and is subject to a due date or amortization schedule. 11 CFR §I00.82(a). 

B. Assurance of Repayment. Commission 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 Analysis 

A. Facts 

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

expenses. The Candidate obtained the loan on behalf of KFC from the First American 

National Bank (FANB) 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 ftom FANB showing that the automobiles had a combined 

National Automobile Dealers Association 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 FANB 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 FANB. On Schedule C (Loans) and Schedule C-1 (Loans and Lines of 

Credit from Lending Institutions), the loan was reported 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 m^e in 

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

repayment. 

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

considered made on a basis that assures repa:yment if the lending institution 

making the loan perfects a securi^ 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 FANB 

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

he pledged as security for the loan. 

• ; The guaranteed loui 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 

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

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

entitled 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 electipn. 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). 

• Neither the Candidate nor KFC pledged future receipts as security for the 

loan, or provided the bank an assignment to access funds in KFC's 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 

^ The guarantor owned the collateral. 
committee to access funds in a committee account at another depository 

institution. FANB did not receive fix)m either the Candidate or KFC a pledge 

of future receipts or an assignment to access funds 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 plarmed to draft a letter indicating that bank officials 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 Interim Audit Report recommended that KFC demonstrate the loan wais made in the 

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

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, KFC did not provide any new 

documentation. However, OC stated that it believes the bank loan was made in Ae 

ordinary course of business in that it was secured by collateral, guaranteed by an 

individual and repaid on June S, 2015 (within 30 days). KFC requested that the 

Commission consider the totality of the circumstances and determine that the loan was 

made on a basis that assured repayment. 

The Audit staff maintains that KFC has not demonstrated that the loan was made on a 

basis that assured repayment regardless of the totality of the circumstances. A loan shall 

be considered made on a basis that assures repayment if it is obtained using collateral or 

future receipts ^ a source of inpayment, or a combination of these sources of repayment. 

KFC did not fulfill the requirements regarding the use of collateral or future receipts 

because: (1) neither KFC lior the Candidate owned the automobiles used as collateral, 

(2) the amount guaranteed by the guarantor exceeded the contribution limit by $49,900 

and (3) FANB did not receive a pledge of future receipts from KFC or the Candidate. 

In addition, KFC's related contention that it repaid the loan quickly is not relevant to the 

question of whether the loan was made on a basis that assured repayment. The speed 

with which KFC met its repayment obligation has no bearing on how it obtained the loan. 

As such, the Audit staff concludes that the totality of the circumstances do not indicate 

that the loan was made on a basis that assured repayment. Therefore, it appears the loan 

was not made in the ordinary course of business and was a prohibited contribution from 

the bank. 
Finding 2. Receipt of Contributions that EKceed Limits | 

Summary 

During audit fieldwork, the Audit staff reviewed loans received and contributions from 

individuals to determine if any exceeded the contribution limit. This review indicated 

that KFC received apparent excessive contributions totaling $75,100. This amount 

consisted of a contribution made in connection with a loan received ($49,900) and 

contributions from individuals ($25,200). In response to the exit conference following 

fieldwork, KFC untimely resolved excessive contributions from individuals, totaling 

$25,200. In response to the Interim Audit Report reconunendation, KFC noted that the 

bank loan was made in the ordinary course of business in that it was secured by collateral 

and guaranteed by an individual. Additionally, KFC stated that while they realize errors 

were made, that the bank loan was repaid in 30 days and all errors were ultimately 

resolved. KFC also provided copies of redesignation and reattribution letters, signed by 

the contributors, which resolved the excessive contributions from individuals totaling 

$25,200. 

Legal 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 gift, 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 guarahtee, 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 that it remains unpaid. The 

ag^gate amount loaned to a candidate or committee by a contributor, when added to 

other contributions from that individual to that candidate or committee, 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 § 100.52(a) and (b)(l)-(3). 

C. Handling Contributions Tbat 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 reattribution 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 §§ 103.3(b)(3), (4) and (5) and 

110.1(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 §110.1(k)(l) and (2). 

E. Reattribution of Excessive Contributions. The Commissioii 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 

committee received the original contribution; and 

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

§iio.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 ^e reattribution in order for it to be effective. 11 CFR 

flrt.l0)(5). 

Notwithstanding the aboye, 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 conPibution was attributed; and 

• The contributor may instead request a refund of the excessive amoimt. 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)(5)(ii)(A). Further, a political committee must retain 

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

§110.1(1X5). 

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 primary 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. 11 CFR §110.1Cb)(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 §lil0.1(b)(5)(ii)(B)(5)-(6). 

Facts and Analysis ... 

A. Excessive Contribution bv Loan Guarantor 

1. Facts.. . . 

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

American National Bank (FANB) iii Tupelo, Mississippi on May 14,2015. An 

associate of the Candidate guaranteed the loan and provided collateral for the loan in 

the forni of two automobiles. KFC provided documentation 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, the 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 that KFC would have 

had a negative cash b^ance from May 18,2015 through May 25,2015 without the 

benefit of the loan. 
10 

2. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit stalf discussed this apparent excessive contribution 

with KFC representatives and provided a schedule of Ae identified excessive 

contributioii. The representatives indicated that they would review the schedule. 

The Interim Audit Report recommended that 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 deemed 

relevant to the matter. 

3. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, KFC did not provide any 

documentation demonstrating the guarantor did not make an excessive contribution. 

However, KFC noted that the error was ultimately resolved in that the bank loan was 

repaid within thirty days. As stated in Finding 1, KFC believes the bank loan was made 

in the ordinary course of business, including being guaranteed by an individual. 

The Audit staff maintains that the guarantor made an excessive contribution totaling 

$49,900 while the loan was still outstanding. 

B. Excessive Contributions from Individuals 

1. Facts 

During audit iieldwork, the Audit staff utilized a combination of sample testing and 

other reviews of contributions, , not included in the sample population, to identify 

apparent excessive contributions from individuals. These reviews indicated that KFC 

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

contributions were ihade 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. 

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 sample error estimate ($2,600) is based on a Monetary Unit Sample with a 9S percent confidence 

level. A review of other contributions not included in the sample population identifi^ apparent excessive 

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

high as $7,370. 
11 

The Interim Audit Report recommended that KFC demonstrate the excessive 

contributions were resolved in a timely manner and/or provide any additional 

comments it deemed relevant to the matter. 

3. Committee Response to Interim Audit Report 

In response to the Interim Audit Report reconunendation, KFC stated that they made 

some errors and that the contributions in question, totaling $25,200, were resolved as 

soon as they were brought to KFC's attention. KFC provided copies of redesignation 

and reattribution letters, signed by the contributors, which ultimately resolved, albeit 

untimely, all of the excessive contributions totaling $25,200. 

The Audit staff acknowledges that KFC acquired and provided signed redesignation 

and reattribution letters in response to the audit, which resolved all of the excessive 

contributions from individuals totaling $25,200, albeit untimely.