This file contains archived live captions of the audit hearing of the Federal Election Commission held on June 22, 2017.  This file is not a transcript of the meeting, and it has not been reviewed for accuracy or approved by the Federal Election Commission.>> Good morning. Convene the audit meeting. With Illinois republican party. Which is available on commission's website. Before us today is John fogerty, Jr. General counsel for committee. Nick. >> Laura jaxit also. Welcome to F.E.C. >> Good morning. Thank you for having us. >> On march 29th, 2017 audit division sent a copy to committee as well as comprehensive analysis. Findings and recommendations. Hearing requested on behalf of commission and commission granted that request. All three of you may make a brief opening statement as desired. Commissioner, general counsel and staff director will have opportunity to ask questions. At end of hearing, you will have an opportunity to make a closing statement. Committee wishes to address issues in findings 2, 3 and 4. Expenditures. Finding three is recordkeeping for commission. Four covers receipt of a parent prohibited contributions. Come mens with your statements. Welcome. >> Thank you very much for having us. Appreciate this opportunity to address you on these points this. Thank you for introductions as well. I would like to provide a little bit of sort of historical context how we came to be before you. The 2011/12 from Illinois election party was not particularly well handled. We had individuals who were taking on too much responsibility. We did not have at the time a professional reporting software or system which we do now. We similarly after 2012 election cycle had a situation where our state party chairman was overthrown and senior staff for the state party who had been running things in 2011/12 cycle were no longer there. Because of sort of a kro money of situation, individuals with records that we in this pros would very much like to have provided to you did not provide us those records. We have done the absolutely best we can. I wanted to make sure it was clear that absolutely no desire among us, the party now to not provide absolutely everything that we have. So to the extended that some of the things we are going to talk about today reflect on our ability to or our inability to provide you reference, we want to make clear that there is no intention not to provide. We have done the best we could, best we have been able to under all of circumstances. Things have changed though. We have an executive director for last two and a half years he's an attorney as well. I've been around for now almost five years and attorney jaxsac as well. We are doing everything we can to make it right. We had prepared for you a PowerPoint of six findings. We chose not to dislocate you and relocate you because there is no exciting graphics on our PowerPoint that would warrant it. If we could, I would like to briefly go through our six slides. I think it bears review given all of the were all of the manner that has come forth in audit process and steps we have taken to remedy. We were table to put together bank records from 2011 and 2012. We readily corrected those. >> We had affirm to rebuild our database at that time at no small expense. That has been done. Reports as they stand now are completely accurate with respect to finding number two. Finding 2 is our parties failure to disclose mail communications as independent expenditures. I will go over in more detail shortly in a moment but our conclusion and I think the evidence will show that these are not independent expenditures at all. We have proper volunteer involvement. We don't see where the evidence would point that the direct mail communications that are identified could be independent expenditures. We will go over that shortly. Finding 3 that noise -- documenting 19 disclosures disclosed as FIA and other matters. We have searched records and no additional documents. They don't exist. We believe that it expenditures are properly disclosed and we similarly don't have those documents. With respect to four receipt of contributions. These amounts were apparentlily given invoices spent on postage of direct mail on communications on behalf of two federal cads. Not for lack of trying. We have been unable to locate records that match these payments to a Mailhouse either via bank records, other questions, et cetera. We regret that. We do, however, contest the conclusion that these amounts would be contributions to Illinois Republican Party. Our contention is that these amounts if prohibited contributions at all are more properly classified as prohibited contributions or over the limit contributions to two congressional cads in these meetings. Finding number five, debts and obligations to 14 different vendors. We have gone back and amended our reports. Rebuilt our records to reflect that and all those debts have been properly reported. Have been discharged, paid off and that has been properly reported as well. Finding number 6. Recordkeeping for field employees. As we have floated throughout -- noted throughout. We do keep records for field employees. Unable to determine whether in the 2012 election cycle proper records were kept for field employees. We could not find them. >> We regret that. As noted in draft interim audit report that deaf I is remedied and no longer a deficiency. P. So I would like to turn your attention, please, to finding number 2. These are 27 expenditures made by Republican Party on behalf of candidates. These expenditures not independent at all. Evidence supports this. Throughout this audit period, we have provided a variety of materials. Most pertinent here are sworn affidavits of individuals with direct personal knowledge of Illinois Republican Party mail program for 2011/12. Mr. Calloway was director of Illinois Republican Party in the 2012 at the proper time. Mr. Calloway in sworn statement notes that job responsibles included overseaing the component of the mail program. And insuring that every piece of mail that they sent on behalf of cads. ILGOP volunteers process that mail. Mr. Calloway sets fourth procedures that were used for sorting, bagging, tagging, its, describes the cads for whom this -- candidates for whom this mail was processed. Authenticates sign-in sheets on volunteers and pictures of volunteers this mail and names of principle volunteers. Mr. Calloway states that none of mail pieces that Illinois Republican Party sent on behalf of these republican candidates was nor intended to be independent expenditure. Left somewhat Hayes Tilly and some of records he collected were not retained. So to the extent that Mr. Calloway had any records, we have provided them to you. Mr. Calloway did testify to a procedure that was used. I also would like to highlight the assertions made again in a sworn affidavit. Mr. Heffernan was a star volunteer for Illinois Republican Party through this cycle and after five or six days processing mail, pro momented to positive -- promoted to position of volunteer coordinator. Mr. Heffernan swore to procedure that was was used and used on behalf of all federal candidates he was involved with such as bagging, tagging, rememberer banding, et cetera. In addition, volunteers taking pictures of other volunteers and providing those pictures to Mr. Calloway at end of their mailings. Mr. Heffernan has names of additional volunteers who processed mail with him. >> Any records, how does he know who those names are affidavit is filed later. How did you identify those people after lapse of time. No records, you call the people? >> That's right. Still acquainted with them. Some of them are likely related to him. He's still acquainted with them. >> What do you mean there were at least 0 -- 10 pieces. Must have been some record? >> Those records cobbled together from what we knew had been sent out. >> Okay. >> Go ahead, proceed. Thanks. >> Finally, Mr. Joe Weiss. Joe is a long-time state Republican Party employee at the end of 2012 cycle. Was executive director for Illinois Republican Party and Joe in his tenure as the deputy executive director was familiar with policy of candidates and states that there was no independent expenditure made on behalf of any federal candidate. We would submit that the evidence here while not perfect is enough to meet the requisites of the volunteer exception and such that these mailings should be not considered in kind but rather non-allocated mail. We have noted reports from this body with respect to other committees dealing with this same issue such as Tennessee Republican Party and 05/06 election cycle. It appears from that report that volunteers performed the same sort of activities. Unclear whether the assertions made by Tennessee Republican Party were actually sworn statements. Hereby contrast, we have sworn statements from individuals with personal knowledge, authenticating a process. Authenticating records attached in that process. >> One affidavit of someone who was there? >> I understand obviously have done work to rebuild this. Just suggesting anyone actually there. >> Yes with Mr. Never -- Heffernan was there. We think our quantum of evidence is enough to meet the volunteer exception here. Finally on the notion that these are independent expenditures. , no need for state party to engage in volunteer activity if they wanted to make independent expenditures. No need. You have same cost of the mail. You would not have to go through all that we were going through all bee it imperfectly in order to keep the communications that were being put forth from being considered to be enkind contributions. Does not make sense. Only on a handful of occasions in the last five years are we aware of any independent expenditures made by Illinois Republican Party. Those independent expenditures made on behalf of state candidates in specific circumstances. We have not made any on behalf of federal candidates. So because the qua item of evidence -- quat um of evidence supports it and we don't think logically concluding that these are independent expenditures with we ask that you adopt finding 2. I'm happy to answer questions now or go to 4. >> What records do you have for this? What records do you have to allow you to piece some of this together, cobble together number of pieces and information like that? Checkbooks? >> We have provided our bank accounts, yes, definitely. Clearly expenditures. Clearly expenditures for this mail. Evident area-wise, we have attached to affidavit of Mr. Heffernan -- attached to affidavit of Mr. Calloway -- picture of volunteers. Volunteer sign-in sheets that we submit is quite direct evidence of volunteer activity. >> Wonder if anyone on our staff would like to ask any questions or wait until later time? On this particular point? Any commissioners. >> I would like to ask -- thank you for making the trip here. Appreciate it and walking through this on in effective manner. I would like to ask our staff if we can talk about what was difference between what we found between audit reports for Arizona, Tennessee and Florida, Mr. Fogerty says we have -- I remember those cases. Have not reviewed them recently. If you can remind us what is crux of distinction. I was volunteer accord nayty for county -- coordinator for county party. It's hard. You remember them. You spend a lot of time with them. Great group of people. Doesn't surprise me that gentleman was able to remember it specifics on bunker man mentality of getting it out over pizza or whatever else you do. I don't know who is proper person to ask the question? . >> Okay. Thank you for coming to Washington for this. We appreciate it. >> Thank you. >> I believe at the interim audit report session I talked about how we handle this situation as far as deciding what is enough evidence for this finding. And I think we used the term lack of clarity as far as our guidance is concerned. I don't exactly recall the difference between the Florida case and Tennessee case that Mr. Fogerty discussed whether therial sworn afterwards or not. If we cannot tie direct evidence to invoice, then we are in the position where we are providing the information to the commission to make a call on it, of course, we cannot make a call at our left. That's where we are at as far as evidence that they provided was good evidence. We certainly appreciate it. But -- >> One case that was similar to this, no affidavit. This one is distinctive in the sense that there are statements under oath regarding. I can't remember exactly previous case either. >> [audio cut out]. >> So you're saying that in order for auditors to be able to say this is okay, you have to be able to tie the mail piece to invoice. This is mail piece we worked on, here is affidavit is not enough from your perspective. >> Yes. >> Okay. And is that written -- is that a policy that is written somewhere or just sort of way that you don't recall that being -- >> Basically, when we get advice from our office of general counsel were that's pretty much how they tell us to provide with us -- proceed with us. We have been doing it for last two or three cycles in that regard. >> Audit report that we are talking about today acknowledges lack of clarity in this area. We talked about it number of times. There's a footnote to a proposed policy that was proposed by commissioner Peterson, myself and commissioner Don -- McGann. It's unfair to drag questions through all of this for a policy that we have not been able to perfect. I'm wondering how much time and energy have you spent trying to deal with just this finding? What is dollar associated for your state party to try to comply with just this finding? >> Certainly. Well I have handled this matters since its inception and I function on a volunteer basis on some occasions and I'm paid on some occasions when we have money to do it. In terms of the time that it takes to put all of this together, it's considerable. When I do volunteer for party, I'm not able to bill my other clients. >> Did you take any picture of your volunteering, any pizza? >> Exactly. So, no, we certainly did. Takes a lot of time. Personally, I begin to serve as general counsel at about this time. I know the effort that they were putting in to making sure that they had volunteers ready for any mailing that was going out. And then dealing with it from then on -- I can't put a dollar amount on it. But it would be in tens of hours tracking people down, trying to see what they remember, searching for records. It's considerable. >> Well, it's overly burdensome and I apologize. Hopefully we can fix this going forward so other committees don't have to go through all of that. >> Thank you. >> I just want to clarify for record, we have commented on this issue in almost in every audit report come up in each of our comments we have specified that there was alack of clarity in this area and we're not sure where the goalpost is because of lack of clarity. We made that clear. The decision to go forward and collect documents to The Commission should have documents should reach decision of where goalpost is, we have records. There's a black of Larry -- lack of clarity in these areas. >> Thank you for that. I agree with that. Until there is lack of clarity, maybe we could come up agreement that we don't go after a certain amount of information while waiting for some kind of policy that can give people guidance going forward. Has to be appoint because of our lack of clarity, we are not going to ask them to do more than is reasonable at least in my view. Thank you. >> Proceed to next finding? >> Yes, thank you. >> Thank you for those comments by the way. Next finding that we take issue with is finding 4. This finding outlines supposed prohibited contributions of over $72,000 allegedly to Illinois Republican Party. As far as I can tell, conclusion this these are contributions to the party, based on invoices that we did have and turn over. These -- on these invoices, there was a reference for a reference that said, postage paid directly to Mailhouse. These invoices were tied to two congressional candidates that Illinois Republican Party was helping. Joe Walsh for Congress in illinois8 and 12. Neither successful that year. We or auditors have been able to determine whether those funds -- if they were truly paid directly to post house. We don't know. Both of these conaggression candidates we do know used one common consultant, mail consultant -- our bank records do not reflect minutes that went from Illinois Republican Party to a mail house as much as we can tell. Because we were doing so much mail for so many candidates, I would contend that it's possible that minutes did go from our coffers to a mail house is not traceable for this purpose. I would Conn tend that's -- contend that is a possibility. We early on sought some guidance, information from the NRCC to see if somehow this was a program that they were helping to -- or partnering in. We have, of course, went to the committees that we were trying to help. But as this was maybe two years after election, maybe not quite two years, good while after election, both candidates lost. Difficult to track anyone down or had knowledge or will to go help out, frankly. We have attempt to do try to figure this out. We likely owed them money at the time. They were less than helpful or able to help. So we essentially don't know whether this was mislabeled or in some fashion. We do though challenge the ultimate conclusion that these would be prohibited contributions to Illinois Republican Party. Our contention was that this mail was like our other pieces -- volunteered processed mail or intended to be. If turned out to be non-allocable because we did it in imperfect way, amounts provided or contended to be prohibited would be credited or should be credited as in-kind or prohibited in-kind to congressional candidate committees who we were try to go assist. So we would reference section 109.37 paragraphs B1 and 2 as authority for treating these supposed prohibited contributions as either an in-kind or as a coordinated expenditure on behalf of the recipient committees. We would submit as well that the volunteer exception that I read as being found in section 100.87 if not done correctly is destroyed, if you will, by an offense to subsection C which states that there can be no designation by the donor for who the -- who ultimately benefits from contribution. We would assert that if minutes paid directly to mail house, that donor, whomever that donor is designating that money directly to candidate. If that is so, then in this limited exception, we deposit that as sake of evidence. Volunteer section would not apply. Would not apply that these contributions are prohibited or over the limit to candidates rather than to the party. >> Have you cross referenced cad committee reports of disbursements to these Mailhouses? >> We have as best we could. We were not able to match up -- >> Match up to dollar. Did you see large payments? >> I'm certain that we did. >> From those candidate communities to this mail house. >> I would have to look again. I believe we did. It has been awhile since I looked at these candidate questions. >> Have we cross referenced the candidate questions. Walsh and who? >> Plumber. >> To see if they made dispersements to this mail house. >> I believe plumber may have. I don't recall Walsh. >> Do you recall prax -- proximate number? >> I don't have that here. >> Do you recall drawing any conclusion whether Plumber disbursement might have covered this $72,000. >> Yes. 72,000. >> Approximate time frames? >> I don't believe so. >> Would not have covered the $72,000? >> I don't believe so. >> Have you considered if a candidate made a payment directly to mail house whether could have been a transfer? In other words, rather than a -- there are lots of rubics through which you can look at this. Sounds like you took trans fers from cads -- candidates to pay for them on your behalf. We crossed that bridge before. Have you looked that whether or not a direct payment from one of those candidates -- presumption of finding is that some third party paid it. >> Right. >> I don't see evidence who that might have been. >> Do we have evidence of that? We don't. >> No. >> We pushed the burden of proof on you to say that some corporation XYZ made payment. >> That's right. >> Given ambiguous notation on invoice. Had candidate paid it, lots of ways to look at it. Taking transfers to help pay for mail on behalf of those candidates. >> That's right. >> Well, I will follow-up with audit staff on looking at what other sources of payments -- >> Are you sure that these invoices related to Walsh and plumber -- >> If doing large amount of work with mail house, I have seen invoices that offset some prior payment or offset as part of whole direct mail invoice. That's where shows up and credit on account is not related to that candidate's mailing. Just shows up on that candidate mailing invoice. You have been unable to figure that out? >> We have not done a full deep dive on that. That is a distinct possibility. Executive director is nodding. I think that's not all that uncommon. >> How much in volunteer do you recall the total number of volume of work that you did in that election year with this one mail house? 72,000 -- 72,000 out of how much work you were doing with mail house. >> Maybe 20%. Maybe 20% of what we were pushing through the state Republican Party. >> Dollar figure? >> Oh. 3 million? >> $72,000 out of 3 million somehow ends up as a notation as credit to some account. >> Yes. >> With ambiguous words paid directly to mail house. >> Yes. >> We don't know who? >> Yes. >> Thank you. >> Staff, any suggestions or thoughts or questions? on this to see if there is anything more than maybe we can do on our end or coordinate to resolve this in short period of time? We will stay in communication and see what we can come of it. >> Thank you very much. If we can do anything further, eager to do so. >> Sure. >> Feel free to go to next finding? >> We referenced finding 3 in our request to be before you. But finding 3 addressed, I believe. Concerns recordkeeping and producing records to substantiate a number of expenditures for FIA and FIA related items. We just don't have those records. We have been through it -- through what we have been able to find. We just do not have anything further. >> Okay. Thanks. Anything else? If not, you can make a closing. >> Okay. Want to thank you very much for your time today, for your insightful questions. and truly thank you for helping us balance our books. This is about as fun as a root canal, I kid, we take disclosure seriously, we want to be good actors in your community. So we ultimately do appreciate this opportunity. >> Thank you very much for coming. This has been a good session. No doubt that you want to comply and make it work. We will see where we can go on this. Thanks once again. >> Thank you all. >> We will adjourn this part of the meeting. Test. Test. Test. Test.