Interim Audit Report of the 

Audit Division on the 

Arizona Republican Party 

(January 1, 2009 - December 31, 2010) 

Why the Audit About the Committee (p. 2) 

Was Done The Arizona Republican Party is a state party committee with 

Federal law permits the headquarters in Phoenix, Arizona. For more information, see the 

Commission to conduct chart on the Committee Organization, p. 2. 

audits and field 

investigations of any Financial Activity (p. 3) 

politica] committee that • Receipts 

is required to file reports o Contributions from Individuals $ 1,297,217 

under the Federal o Political Committee Contributions 32,001 

Election Campaign Act o Transfers from Affiliates 353,151 

(the Act). The o Transfers from Non-federal and 196,710 

Commission generally Levin Accounts 

conducts such audits o Offsets and Other Receipts 19,581 

when a committee Total Receipts $ 1,898,660 

appears not to have met 

the threshold . • Disbursements 

requirements for o Operating Expenditures $ 1,028,844 

substantial compliance o Federal Election Activity 299,340 

with the Act.' The audit o Transfers to Non-federal Accounts 34,109 

determines whether the o Coordinated Expenditures 529,361 

committee complied o Other Expenditures 12,500 

with the limitations, Total Disbursements $ 1,904,154 

prohibitions and 

disclosure $ 20,301 requirements • Levin. Receipts $ 20,301 

of the Act. • Levin Disbursements $ 28,329 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

Findings and Recommendations (p. 4) 

• Misstatement of Financial Activity (Finding 1) 

• Excessive Coordinated Party Expenditures (Finding 2) 

• Reporting of Debts and Obligations (Finding 3) 

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

Audit Division on the 

Arizona Republican Party 

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

Page 

Part I. Baclcground 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 3 

Part III. Summaries 

Findings and Recommendations 4 

Part IV. Findings and Recommendations 

Finding 1. Misstatementof Financial Activity 5 

Finding 2. Excessive Coordinated Party Expenditures 8 

Finding 3. Reportingof Debts and Obligations 10 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Arizona Republican Party (ARP), 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 2 U.S.C. §438(b), which permits the 

Commission to conduct audits and field investigations of any political committee that is 

required to file a report under 2 U.S.C. §434. Prior to conducting any audit under this 

subsection, the Commission must perform an intemal review of reports filed by selected 

committees to determine whether the reports filed by a particular committee meet the 

threshold requirements for substantial compliance with the Act. 2 U.S.C. §438(b). 

Scope of Audit 

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

factors and as a result, this audit examined: 

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

2. the disclosure of disbursements, debts and obligations; 

3. the disclosure of expenses allocated between federal, non-federal, and Levin 

accounts; 

4. the consistency between reported figures and bank records; 

5. the completeness of records; and 

6. other committee operations necessary to the review. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration October 6,1975^ 

• Audit Coverage January 1,2009-December 31,2010 

Headquarters Phoenix, Arizona 

Bank Information 

• Bank Depositories One 

• Bank Accounts Four Federal, One Levin and Four Nonfederal Accounts 

Treasurer 

• Treasurer When Audit Was Conducted Timothy Lee [through April 25,2012] 

Andrew A. Stevens [as of April 26,2012] 

• Treasurer During Period Covered by Audit Timothy Lee 

Management Information 

• Attended a Commission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

^ The ARP registered with the Secretary of the Senate as the Republican State Committee of Arizona. In 1985, the 

ARP filed an amended Statement of Organization, changing its name to the Arizona Republican Party. 
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand ® January 1,2009 $ 4,399 

Receipts 

o Contributions from Individuals $ 1,297,217 

o Political Committee Contributions 32,001 

o Transfers from Affiliates 353,151 

o Transfers from Non-federal and Levin 

Accounts 

196,710 

o Offsets and Other Receipts 19,581 

Total Receipts $1,898,660 

Disbursements 

o Operating Expenditures $ 1,028,844 

o Federal Election Activity 299,340 

o Transfers to Non-federal Accounts 34,109 

o Coordinated Expenditures 529,361 

o Other Expenditures 12,500 

Total Disbursements $ 1,904,154 

Cash-on-hand @ December 31,2010 

Levin Cash-on-hand @ January 1,2009 

($ 1,095)"* 

$ 8,535 

Total Levin Receipts $ 20301 

Total Levin Disbursements $ 28,329 

Levin Cash-on-hand @ December 31,2010 $507 

Overdraft was cleared on January 6,2011. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison ofthe ARP's reported financial activity with its bank 

records revealed a misstatement of the beginning and ending cash balances, receipts and 

disbursements in calendar years 2009 and 2010. The misstatements were due mainly to 

unreported transfers from the non-federal accounts, unreported receipts and operating 

expenditures, and unreported non-federal payroll paid from a federal account. For 2009, the 

ARP overstated the beginning cash balance by $25,971, understated receipts by $56,959 and 

disbursements by $92,890, and overstated the ending cash balance by $61,902. For 2010, the 

ARP understated receipts by $99,511 and disbursements by $55,892 and overstated the ending 

cash balance by $18,283. The Audit staff recommends that the ARP amend its disclosure reports 

to correct the misstatements for both 2009 and 2010. (For more detail, see p. 5.) 

Finding 2. Excessive Coordinated Party Expenditures 

For the audit period, the ARP reported coordinated expenditures for three House candidates that 

exceeded the 2010 coordinated party expenditure limit by a total of $383,862. The Audit staff 

recommends that the ARP provide evidence that the expenditures were not coordinated or seek 

reimbursement from the candidate who benefited. (For more detail, see p. 8.) 

Finding 3. Reporting of Debts and Obligations 

Audit fieldwork indicated that the ARP failed to report debts and obligations for seven vendors 

totaling $81,948 on Schedule D (Debts and Obligations). The Audit stafT recommends that the 

ARP amend its disclosure reports to include these debts and obligations. (For more detail, see p. 

10.) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of the ARP*s reported financial activity with its bank 

records revealed a misstatement of the beginning and ending cash balances, receipts and 

disbursements in calendar years 2009 and 2010. The misstatements were due mainly to 

unreported transfers from the non-federal accounts, unreported receipts and operating 

expenditures, and unreported non-federal payroll paid from a federal account. For 2009, the 

ARP overstated the beginning cash balance by $25,971, understated receipts by $56,959 and 

disbursements by $92,890, and overstated the ending cash balance by $61,902. For 2010, the 

ARP understated receipts by $99,511 and disbursements by $55,892 and overstated the ending 

cash balance by $18,283. The Audit staff recommends that the ARP amend its disclosure reports 

to correct the misstatements for both 2009 and 2010. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at the beginning and end ofthe reporting period; 

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

• the total amount of disbursements for the reporting period and for the calendar year; and 

• certain transactions that require itemization on Schedule A (Itemized Receipts) or Schedule B 

(Itemized Disbursements). 2 U.S.C. §434(b)(l), (2), (3), (4) and (5). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled the ARP's reported financial activity with its 

bank records and identified a misstatement of the beginning and ending cash balances, receipts 

and disbursements for calendar years 2009 and 2010. The following charts detail the 

discrepancies between the totals on the ARP*s disclosure reports and bank records. Succeeding 

paragraphs explain why the discrepancies occurred. 

2009 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1,2009 

$30,370 $4,399 $25,971 

Overstated 

• Receipts $483,816 $540,775 $56,959 

Understated 

Disbursements $449,381 $542,271 $92,890 

Understated 

Ending Cash Balance @ 

December 31,2009 

$64,805 $2,903 $61,902 

Overstated 
The $25,971 overstatement of the beginning cash balance was due mainly to prior-period 

reporting discrepancies. 

The understatement of receipts was the result of the following: 

• Transfers from the non-federal accounts not reported 

• Contributions not reported 

• Reported receipts not supported by deposit documentation or 

credit 

• Unexplained difference 

Net Understatement of Receipts 

The understatement of disbursements was the result of the following: 

Non-federal payroll paid from federal account not reported 

Transfers to the non-federal account not reported 

Operating expenditures not reported 

Reported disbursements not supported by a cancelled check or 

debit 

Unexplained difference 

Net Understatement of Disbursements 

$51,042 

13,115 

(7,158) 

(40^ 

$56.959 

$ 78,686 

10,300 

6,390 

(2,489) 

$ 92.890 

The $61,902 overstatement of the ending cash balance resulted from the reporting discrepancies 

noted above. 

2010 Activity 

Reported Bank Records Discrepancy 

Beginning Cash Balance 

@ January 1, 2010 

$64,805 $2,903 $61,902 

Overstated 

Receipts $1,258,374 $1,357,885 $99,511 

Understated 

Disbursements $1,305,991 $1,361,883 $55,892 

Understated 

Ending Cash Balance @ 

December 31,2010 

$17,188 ($1,095) $18,283 

Overstated 

The understatement of receipts was the result of the following: 

Transfers from the non-federal accounts not reported 

Contributions not reported 

In-kind contributions not reported 

Reported receipts not supported by deposit documentation or 

credit 

Unexplained difference 

Net Understatement of Receipts 

$ 55,272 

45,006 

11,151 

(11,697) 

(221) 

$99.511 
The understatement of disbursements was the result ofthe following: 

• Non-federal payroll paid from the federal account not reported $ 14,202 

• Operating expenditures not reported 29,497 

• Transfers to non-federal accounts not reported 16,366 

• In-kind contributions not reported 11,151 

• Reported disbursements not supported by a cancelled check or (11,788) 

debit 

• Disbursements paid from non-federal accounts reported in error (3,751) 

• Unexplained difference 215 

Net Understatement of Disbursements $ 55.892 

The $18,283 overstatement of the ending cash balance resulted from the reporting discrepancies 

noted above. 

The ARP contracted with Paychex, a third-party vendor, to process employee salaries, taxes and 

health benefits.^ Paychex withdrew funds from the ARP's federal administrative account to pay 

federal payroll, allocated payroll, non-federal payroll and related benefits. The non-federal 

account reimbursed the federal account for the non-federal payroll and benefits.^ The ARP 

reported only the federal payroll, allocated payroll and related benefits. The ARP did not report 

non-federal payroll and benefits and the reimbursement from the non-federal account. Since the 

ARP paid the non-federal payroll, taxes and benefits from the federal administrative account, 

these expenditures should have been reported on Schedule B - Other Disbursements and the 

reimbursement from the non-federal account on Schedule A - Other Receipts. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference. Audit staff provided the ARP representatives with workpapers detailing 

the misstatements of financial activity and discussed the reporting requirements for financial 

activity passing through the federal bank accounts. An ARP representative asked whether the 

requirement also applied to credit card contributions intended for the non-federal account. The 

Audit staff stated that because all credit card contributions are processed through the federal 

account, contributions intended for the non-federal account need to be reported first on Schedule 

A - Other Receipts, and the transfer of the funds to the non-federal account needs to be reported 

on Schedule B - Other Disbursements. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, the ARP 

should: 

• amend its reports to correct the misstatements for 2009 and 2010 as noted above; 

• amend its most recent report to correct the cash-on-hand balance with an explanation that 

the change resulted from a prior-period audit adjustment; and 

• reconcile the cash balance of its most recent report to identify any subsequent 

discrepancies that may affect the $18,283 adjustment recommended by the Audit staff. 

^ Paychex began providing payroll services on October 1,2009; prior to that date, payroll services were provided by 

Business Management Solutions LLC. 

^ A review of payroll expenditures showed that the non-federal account did not overfund the non-federal payroll. 
I Finding 2. E<xcessive Coordinated Party Expenditures 

Summary 

For the audit period, the ARP reported coordinated expenditures for three House candidates that 

exceeded the 2010 coordinated party expenditure limit by a total of $383,862. The Audit staff 

recommends that the ARP provide evidence that the expenditures were not coordinated or seek 

reimbursement from the candidate who benefited. 

Legal Standard 

A. Coordinated Party Expenditures. National party committees and state party committees 

are permitted to purchase goods and services on behalf of candidates in the general election, over 

and above the contributions that are subject to contribution limits. Such purchases are termed 

"coordinated party expenditures." They are subject to the following rules: 

• The amount spent on "coordinated party expenditures" is limited by statutory formulas 

that are based on the Cost of Living Adjustment (COLA) and the voting-age population. 

• Party committees are permitted to coordinate the spending with the candidate 

committees. 

• The parties may make these expenditures only in connection with the general election. 

• The party committees—not the candidates—are responsible for reporting these 

expenditures. 

• If the party committee exceeds the limits on coordinated party expenditures, the excess 

amount is considered an in-kind contribution, subject to the contribution limits. 2 U.S.C. 

§441a(d) and 11 CFR §§109.30 and 109.32. 

B. Assignment of Coordinated Party Expenditure Limit. A political party may assign its 

authority to make coordinated party expenditures to another political party committee. Such an 

assignment must be made in writing, state the amount of the authority assigned, and be received 

by the assignee before any coordinated party expenditure is made pursuant to the as.signment. 

The political party committee that is assigned authority to make coordinated party expenditures 

must maintain the written assignment for at least three years. 11 CFR § 109.33(a) and (c). 

C. Limits on Contributions Made by State and Local Party Committees. 

State and local party committees must comply with the contribution limits below: 

• $5,000 per election to a federal campaign if the contributing committee has qualified 

as a multicandidate committee (see below); 

• $2,400 per election to a federal campaign if the contributing committee has not 

qualified as a multicandidate committee; 

• $5,000 per year to a separate segregated fund (corporate or labor political action 

committee) or a nonconnected committee; and 

• unlimited transfers to other party committees. 2 U.S.C. §441 a(a). 
Facts and Analysis 

A. Facts 

The coordinated expenditure limit for the 2010 election cycle for a House candidate in the state 

of Arizona was $43,500 each for the state and national party committees. The ARP reported 

receiving authorization from the Republican National Committee (RNC) and the National 

Republican Congressional Committee (NRCC) to make coordinated expenditures on behalf of 

House candidates Paul Gosar (Arizona District 1), David Schweikert (Arizona District 5) and 

Jesse Kelly (Arizona District 8). During audit fieldwork, the Audit staff requested, but did not 

receive, documentation as required by 11 CFR § 109.33(a) from the ARP demonstrating the 

parties' authorization. A review ofthe NRCC's disclosure reports indicated that the NRCC 

made coordinated expenditures of $85,000 on behalf of Paul Gosar for Congress and $85,000 for 

Kelly for Congress. Also, the NRCC reported receiving authorization from the RNC and the 

ARP to make these expenditures. Therefore, without documentation to support an increased 

coordinated spending limit, the ARP's coordinated spending limit for each congressional 

candidate is $43,500.^ 

The ARP reported making coordinated expenditures for direct mail pieces totaling $57,373 on 

behalf of Paul Gosar for Congress, $209,032 for David Schweikert for Congress and $262,957 

for Kelly for Congress. These expenditures are in excess of the authorized coordinated spending 

limit for each candidate and resulted in an apparent excessive in-kind contribution to each 

candidate. 

The following chart details the total amount of coordinated expenditures reported by the ARP 

and the resulting apparent excessive in-kind contributions. 

ARP Coordinated Expenditures 

Paul 

Gosar for 

Congress 

David 

Schweikert 

for Congress 

Kelly for 

Congress 

Total 

Reported Expenditures $57,373 $209,032 $262,957 

Less: Spending Limit ($43,500) ($43,500) ($43,500) 

Over Limit (In-kind Contribution) $13,873 $165,532 $219,457 • Less: Allowable Contribution' ($5,000) ($5,000) ($5,000) HHHHi 

Excessive In-kind Contributions $8,873 $160,532 $214,457 $383,862 

Coordinated Expenditures reported 

bytheNRCC^ $85,000 $0 $85,000 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided the ARP representatives with a schedule of the 

apparent excessive in-kind contributions. The ARP representatives stated that they had not 

received a response from the RNC or NRCC about authorization of the coordinated expenditure 

^ The ARP did not provide any documentation to demonstrate that it had transferred its authority the NRCC to make 

coordinated expenditures on behalf of the candidates. 

^ The ARP did not report any contributions to federal candidates during the 2010 election cycle. 

^ Reported expenditures were made prior to the expenditures reported by the ARP. 
10 

limit and asked what this finding would mean for the committee. The Audit staff stated that if 

the ARP cannot provide documentation to refute coordination, the Commission could find that 

the ARP made an excessive in-kind contribution to the candidates and ask it to request a refund 

from the candidates. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, the ARP 

demonstrate that it did not exceed its coordinated spending limit on behalf of Paul Gosar for 

Congress, David Schweikert for Congress and Kelly for Congress. Absent evidence of the 

above, the Audit staff recommends that the ARP seek reimbursement from Paul Gosar for 

Congress in the amount of $8,873, David Schweikert for Congress in the amount of $160,532 

and Kelly for Congress in the amount of $214,457. 

Finding 3. Reporting of Debts and Obligations 

Summary 

Audit fieldwork indicated that the ARP failed to report debts and obligations for seven vendors 

totaling $81,948 on Schedule D (Debts and Obligations). The Audit staff recommends that the 

ARP amend its disclosure reports to 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 until those debts are extinguished. 

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

B. Separate Schedules. A political committee must file separate schedules for debts owed by 

the committee and debts owed to the committee, together with a statement explaining the 

circumstances and conditions under which each debt and obligation was incurred or 

extinguished. 11 CFR §104.11(a). 

C. Itemizing Debts and Obligations. 

• A debt of $500 or less must be reported once it has been outstanding 60 days from the 

date incurred (the date of the transaction); the committee reports it on the next regularly 

scheduled report. 

• A debt exceeding $500 must be disclosed in the report that covers the date on which the 

debt was incurred. 11 CFR § 104.11 (b). 

Facts and Analysis 

A. Facts 

During audit fieldwork, theAudit staff reviewed the ARP's disbursement records and disclosure 

reports for proper reporting of debts and obligations for 12 selected vendors. The review 

identified debts totaling $188,956 that the ARP reported properly on Schedule D. However, the 
11 

ARP did not report as required additional debts totaling $81,948 that it owed to seven of these 

vendors.' 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the reporting of debts and obligations with the ARP's representatives 

at the exit conference and provided workpapers detailing the unreported debts. The ARP 

representatives had no comment. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, the ARP 

amend its reports to disclose these debts and obligations on Schedule D. 

^ This is the sum of the total unreported debt for each of the seven vendors during the period covered by the audit 

(debts only counted when incurred).