i y^. •y- • 

FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

May 21,2014 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

From: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister~T«N 

Assistant Staff Director 

Audit Division 

Alex Boniewicz 

Audit Manager ^ 

Marty Favin 

Audit Manager 

By: Robert Morcom/OiCj 

Lead Auditor 

Subject: Audit Division Recoimnendation Memorandum on the Committee on 

Arrangements for the 2012 Republican National Convention (COA) 

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

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

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

this memorandum and concurs with the recommendations. 

Finding 1. Net Outstanding Convention Expenses (NOCE) 

In response to the Preliminary Audit Report, COA did not dispute the amount 

repayable to the United States Treasury of $670,769 as of October 31,2013 and 

provided an updated NOCE. The revised NOCE prepared by the Audit staff and 

presented in the DFAR reflected an amount of unspent funds of $701,106 as of 

February 28,2014. COA provided no additional comments concerning the revised 

NOCE in its response to the DFAR, however; COA provided the Audit staff with 

an updated NOCE on May 2,2014. Based on the COA's calculations on the latest 

NOCE, the Audit staff revised the amount of unspent funds to be $679,623 as of 

April 30,2014. 
-'-K • • " i *-•.». 

Hie Audit staff recommends that the Commission find that the remaining portion 

of unspent fimds as of April 30,2014, $679,623,' is repayable to the United States 

Treasury. 

Finding 2. Failure to Itemize Debts 

In response to the Preliniinaiy Audit R^rt, COA filed amended reports whitdi 

materially itemized debts and obligations of $272,085 to four vendors. In addition, 

COA stated that it disagreed with the basis for the finding but provided no further 

explanation. COA provided no additional comments in its response to the DFAR. 

The Audit staff reconunends that the Commission find that the COA fiailed to 

disclose debts and obligations of $272,085 in its reports. 

The Committee did not request an audit heating. 

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 Morcomb or Alex Boniewicz at 

694-1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on the Conunittee on Arrangements 

for the 2012 Republican National Convention 

cc: OfQce of General Counsel 

• Estimated winding down cost will be compared to actual winding down cost and adjusted accordingly. 
>..y. 

* y.^ 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit the 

national committee of a 

party who receives 

payments for presidential 

nominating conventions.' 

The audit examines the 

receipt and use of Federal 

funds and whether the 

committee otherwise 

complied with the 

limitations, prohib^ 

and disclosure 

requirements of 

election law. 

Draft Final Audit Report of the 

Audit Division on the Committee 

on Arrangements for the 2012 

Republican National Convention 

(June 22, 2010 - February 28, 2014) 

About the Comii^tee (p. 2) 

The Committee on Am^raniciits for the 2012 Republican 

National Conventigd^^) wiis responsible for die day-to-day 

arrangements aq^^^^tion-> of g^e Republican Presidential 

nomination convciiiion. COAls lii;aclc|iiartered in Washington, 

DC. For ritVL- inrciriiiation, see ciiiiii DM '.lie Committee 

OrganizatiD-i. ;i. 2. 

Activity 

Put 

inii 

action, 

with res 

matters di 

report. 

Expenditures 

iission 

enforcement 

time, 

ly of the 

^^n this 

$ 18,248,300 

1,000,000 

998,957 

$ 20,247,257 

$ 17,789,385 

1,000,000 

$ 18,789,385 

Findings and Recommendations (p. 3) 

I* Net Outstanding Convention Expenses (Finding 1) 

• Failure to Itemize Debts (Finding 2) 

26U.S.C. §9008(g). 
• ^y-K- • « • * y*^ • y-K • • y>KDraft Final Audit Report of the 

Audit Division on the Committee 

on Arrangements for the 2012 

Republican National Convention 

(June 22, 2010 - Fc^aiy 28, 2014) 
Table of Contents 

Page 

Parti. Background 

Authority for Audit 

Scope of Audit 

Inventory of Committee Records 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Reconiiy^dations 

Finding 1. Net Outstanding Cuinention ExpTisc-. 

Finding 2. Failure to Itemize Dcht-s 

2 

2 

4 

6 

. • • •• • •• 
•-•••v.. • 

 • * y-*^ ' 

Parti 

Background 

Authority for Audit 

This report is based on an audit of the Committee on Arrangements for the 2012 

Republican National Convention (COA), undertaken by the Audit Division of the Federal 

Election Commission (the Commission) as mandated by Section 9008(g) of Title 26 of 

the United States Code. That section directs the Commission to conduct an examination 

and audit of the payments for presidential nominating convcni^ons no later than 

December 31 of the calendar year in which the preside:/:-, nominating convention 

involved is held. 

Scope of Audit 

This audit examined: 

1. the disclosure of receipts and loans; I 

2. the disclosure of disbursements, debts ai:cl oidigationsUi 

3. the recordkeeping process and complet 

4. the consistency between rep^^^/igures and'^^^pErds; 

5. the accuracy of the Statement'B^i^i|jt;;Qutstandinp^^vention Expenses; 

6. the committee's compliance wi^^reql^ments conci&j^g expenditures for 

convention expenses; and 

7. other committee, opjefations necess^.to the i 

Inventory 

The Audit staff i ^of committee records before it begins the 

audit fieldstork.. ^mplete and the fieldwork began 
•J y.K. 

•-i-i; . > . 

Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration June21,20!()^ 

• Audit Coverage June 2^-Mi: - February 28,2014 

Headquarters Waskil^^C 

Bank Information 

Bank Depositories 

Bank Accounts 

Treasurer 

Treasurer When Audit Was Conducted 

• Treasurer During Period Covi 

Management Information 

• Attended Commission Campaign 

Seminar 

Who Handled A( 

Recordkeeping 

Lcial Activity 

loiints) 

Cash-on-hs^i@ June 22, $0 

Receipts 

o Federal Funds^fei^ Mi 18,248,300 

o Loans Received 1,000,000 

o Offsets to Conventid^ti^iaitures 998,957 

Total Receipts $20,247,257 

Disbursements 

o Convention Expenditures 17,789,385 

o Loan Repayments 1,000,000 

Total Disbursements $ 18,789385 

Cash-on-hand @ December 31,2012 $ 1,457,872 
'y-k • .-••ifc 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Net Outstanding Convention Expenses 

COA received $18,248,300 in federal funds to finance the Rjspubiican National 

Convention. The Statement of Net Outstanding Conventiq^xpenses (NOCE), as 

calculated by the Audit staff, shows an amount of unsp^pShds of $1,020,769^. This 

amount is repayable to the United States Treasury On 28,2013, COA made an 

interim repayment of $350,000. 

In response to the Preliminary Audit Repoi' ii-i-mnmendation, Ci^provided 

documentation indicating the remaining ciijni.-il assets were of no r^TOgl value and w 

updated NOCE throughi August 2014. T1 i->i- .'idmtmciii<> have been^^roorated by 

Audit staff iiito the revised NOCE that reflectsl^^oiiiii ui unspent fiu^ ol S701,106 

as of February 28,2014. In addiS^iCOA, did n^^^|u.ic ih.c NOCE calcnl.iiions 

contained in Ae Preliminary Aud^^^rt. 

The Audit staff recommends that 

remaining portion ofij^^gnt funds, 

(For more detail 

Finding 2. 

Audit fu 

:Tii'>«:or. ir.ake a 

1.106, IS rcpasiible 

ion that the 

United States Treasury. 

se to the I'lclh 

pi-^emize these ^ 

with the ita%.for the find 

p. 6.) 

to Itemize Debts 

C.'C^.A piled :o report debts and obligations relating to four 

2V2.08.5 cm Seliediilc D (UCIUN .uid Obligations). 

Report recommendation, COA filed amended 

lions. In addition, COA stated that it disagreed 

no further explanation. (For more detail, see 

^ This amount is based on the NOCE as prepared through October 31,2013. 
V..A . , 

Part IV 

Findings and Recommendations 

Finding 1. Net Outstanding Convention Expenses 

Summary 

COA received $18,248,300 in federal funds to finance the Republican National 

Convention. The Statement of Net Outstanding Conventioi]i£xpenses (NOCE), as 

calculated by the Audit staff, shows an amount of UIIIIH-MI f.^s of $1,020,769^. This 

amount is repayable to the United States Treasury. On June '28,2013, COA made an 

interim repayment of $350,000. 

In response to the Preliminary Audit Report reaunmendation,'^^ provided 

documentation indicating the remaining i<'>sets were of n^^idual value and an 

updated NOCE through, August 2014. T^c adjustments have be^uianporated by 

Audit staff into the revised NOCE that refleciN an amount cif unspent I'uials of $701,106, 

as of February 28,2014. hi addition COA, did no;ilic NOCE c^-diiiions 

contained in Ae Preliminary Audit Report. 

amounts.. 

Price,'" 

The Audit staff recommends that 

remaining portion of unspent fuhds,'$701,1 

Legal Standard ^ 

A. Entitlement 

shall be entitled to 

itjji the a{ 

ijor 

$1^^1300. 

ination that the 

United States Treasury. 

le naiionsrcommittee of a major party 

presidential nominating convention, in 

,000,000, as adjusted by the Consumer 

12 nominating convention was 

B. Rel^^ipents. Any 

expense^^^ been paid 

committee o^gnvention 

based on the fi^^al posit^ 

following the last^^pf thi 

by the Commission 

repayment shall be 

following the last day of the 

01 ili^mtitlement that remains unspent after all convention 

be reused to the Secretary of the Treasury. The national 

ittee shall make an interim repayment of unspem fimds 

if the committee as of the end of the ninth month 

vention, allowing for a reasonable amount as determined 

leld for unanticipated contingencies. The interim 

later than 30 calendar days after the end of the ninth month 

convention. 11 CFR §9008.12(b)(5). 

C. Repayment Determination Procedures. The Commission will follow the same 

repayment determination procedures, and the committee has the same rights and 

obligations as are provided for repayment determinations involving publicly funded 

candidates under 11 CFR 9007.2(c) through (h). 11 CFR §9008.12(c). 

^ See footnote #2. 
••••»•• ^.--K • •y-H 

p. Net Outstanding Campaign Expenses (NOCE). A convention committee shall file, 

no later than 60 days after the last day of the convention, a statement of that committee's 

"net outstanding convention expenses." This statement must contain, among other things: 

• The total of all committee assets including cash on hand, amounts owed to the 

committee and capital assets listed at their fair market value; 

• The total of all outstanding obligations for qualified campaign expenses; and 

• An estimate of necessary winding-down costs. 11 CFR §9008.10(g). 

Facts and Analysis 

A. Facts J 

For the 2012 national conventions, each major politiea^jay was entitled to receive 

federal funds of $18,248,300 to finance its national^^^^^l nominating convention. 

The 2012 Republican National Convention ended o^ugusl^k^012. COA filed a 

Statement of Net Outstanding Convention l:x|vii.<'es as of Octol^l4,2012. The Audit 

staff reviewed financial activity through F^brn.iry 28,2014, and ^^^ted the winding 

down cost in preparing the figures shown 1 

Statement of Ne; 

Prepared' 

tion Expens0 

Cash in Bank 

Accounts Recei 

Total Assets 

^$2,556,924 

1,051,925 [a] 

$3,608^9 

> Payable f6l'^.)ii:ilifii 

at 10/14/1.2 

Windinglf^vm Costs 

Actual t^d5/12-2/2 

EstimatedH|l/14 - 8/^34) 

Total Liabilities '' 

Net Outstanding Convention Expenses (Surplus) 

as of October 14,2012 

Less: Interim Repayment made June 28,2013 

$2,557.743 

$1,051,106 [c] 

($350,000) 

Amount Repayable to the United States Treasury $701.106 

[a] This amount includes a pending receivable of $4,182. 

[b] Estimated winding down costs will be compared to actual winding down cost and adjusted accordingly. 

[c] Due to the estimated winding down cost decreasing, the amount of surplus has increased by $30,337. 
The NOCE as calculated by the Audit staff showed unspent funds of $1,020,769 as of 

October 31,2013. At the exit conference, COA representatives were provided a copy of 

the NOCE as calculated by the Audit staff. The Audit staff explained that the amounts 

will have subsequent adjustments relating to future financial activity. A COA 

representative stated that the amounts are close to their numbers and that COA would be 

filing.an updated NOCE. Pursuant to 11 CFR §9008.12(b)(S), COA made an interim 

repayment of $350,000 to the United States Treasury on June 28,2013. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Preliminary Audit Report recommended that COA proj^e documentation 

demonstrating Aat either: (a) no repayment of the rema^^pmspent funds was due; or 

(b) a lesser amount was due as repayable to the Unitqg^^p Treasury. 

C. Committee Response to Preliminary Aw 

In response to the Preliminary Audit Report 

NOCE through August 2014. COA also 

assets initially valued at $15,372, as 

Report, were of no residual value. These adj 

revised NOCE that reflects an j 

2014. In addition COA, did i 

Preliminary Audit Report. As a i 

Treasury is $701,106. 

I Finding 2. jfrailure ibts 

irt 

on, 0!^ provided an updated 

documentatio^m^cating that capital 

the NOCE in theHflpiinary Audit 

hajK^een incor^^d into the 

luiiiU of 1^01,106, as ^^^Hpuury 28, 

the NOCl- i.-Hk-iilations contained inl 

ffic air.ouni icjiayabie to the United States 

Summary 

Audit Its and obligations relating to four 

Obligations). 

ort recommendation, COA filed amended 

ions. In addition, COA stated that it disagreed 

no further explanation. 

Legal St 

A. Continuous RelSl^nig Required. A political committee must disclose the amount 

and nature of outstanoi^pebts 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 and to the committee with a statement explaining the circumstances and 

conditions under which each debt and obligation was incurred or extinguished. 

II CFR §104.11(a). 
••-wiA . > ^ 

4 .•^. 

C. Itemizing Debts and Obligations. 

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

must be reported 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, except reoccurring administrative expenses (such as rent) 

shall not be reported as a debt before the payment due date. 11 CFR-§104.11(b). 

Facts and Anal3rsis 

A. Facts 

During audit fieldwork, the Audit staff reviewed disli'.irsuine^records and disclosure 

reports for proper reporting of debts and obligations iisinp both sampling and a 100 

percent review. These reviews identified debts ov^. lo loiir|^dors totaling $272,085 

that COA failed to disclose. COA should havejs^OTici! ilic on Schedule D of its 

disclosure reports that covered the dates on ^\lili;li^e debts weri^^urred. Specifically, 

COA incurred a debt totaling $80,500 on May 22. 2012, owed to^^paign 

Solutions/The.Donatelli Group and shoul^^e reported the debt oi^^||^ule D of its 

July 2012 Quarterly report. In addition, COi^^ild hav.e^ported on S^dule D of its 

October 2012 Quarterly report a ^bt totaling $^^62 cmi^to Mass Reli^ni^ that was 

incurred between August 27 anc^p^mber 12,2012. a cicbt totaling $162,871 owed to 

Smart Source that was incurred l^m^^uly 16 and Sc|)iumber 17,2012, and a debt 

totaling $15,012 owed to Vente Ne^Wk^^was incurl^^n September 10,2012. The 

number of days outsta^njg for the WMS rari^f^rn 43 d^^to 93 days. It should be 

noted that COA did^^^iifany debt!^urini> :;ic 

B. Preliminarylmj^t Rep(irt^& Audit Diylsinn Recommendation 

The Audit staff discii^^ the rifling of dl&and obligations with COA 

represe^fay&aiui pri^clccl ^ch^^'c^ dciaila^the transactions requiring disclosure. 

COA^p^e^^^had no ctiinmeni mi iliN ii^er. In response to the exit conference, 

CQ^^rote that it Unseed wiil^e basis funirfinding that it failed to itemize debts. 

COl^oted that it pr^^fa paiiS^^nvoices following a diligent internal review process 

in whi^l^ invoices w^^view^^^ accuracy, legitimacy, approved by the 

designated^^ittee pers^nel and'^^guished during the subsequent reporting period. 

Neverthelesi^^^ agreed t^le amended Schedules D, to disclose the four items 

identified by the^udit staff| 

The Preliminary AumtMgp^ recoirunended that absent documentation demonstrating 

that these expenditures not require reporting on Schedule D, COA amend its 

disclosure reports to properly disclose these debts. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, COA filed amended 

Schedules D to itemize these debts and obligations. In addition, COA stated that it 

disagreed with the basis for the finding but provided no further explanation.