Final Audit Report of the 

Commission on tlie Georgia 

Federal Elections Committee 

(January 1, 2005 - December 31, 2006) 

Why the Audit 

Was Done 

Federal law permits the 

Coinmission to conduct 

audits and field 

investigations of any 

political conunittee that 

is required to file reports 

under the Federal 

Election Campaign Act 

(tiie Act). The 

Commission generally 

conducts such audits 

when a coinmittee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

witii tiie 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 Conunittee 

The Georgia Federal Elections Conunittee is a state party committee 

of the Georgia Democratic Party headquartered in Atianta, Georgia. 

For more information, see Committee Organization on p. 2. 

Financial Activitjr^ (p. 3) 

• Receipts 

o Contributions from Individuals $ 831,477 

o Contributions from Other Political 349,991 

Committees 

o Transfers from Affiliated Party Committees 776,863 

o Offsets to Operating Expenditures 13,928 

o Transfers from Non-federal Accounts 564,956 

o Other Federal Receipts 1,800 

Total Receipts $ 2,539,015 

Disbursements 

o Operating Expenditures $ 1,192,694 

o Contributions to Federal Candidates 12,323 

o Coordinated Party Expenditures 142,208 

o Contribution Refimds 5,800 

o Federal Election Activity 701,728 

o Transfers to Non-federal Accounts 460,783 

o Other Federal Disbursements 2,047 

Total Disbursements $2,517,583 

Conunission Findings (p. 6) 

• Misstatement of Financial Activity (Finding 1) 

• Recordkeeping for Salaries and Related Expenses (Fmding 2) 

• Disclosure of Occupation/Name of Employer (Finding 3) 

Additional Issues (p. 13) 

• Misstatement of Financial Activity - Payroll (Issue 1) 

• Non-federal Funding for Possible Federal Activity (Issue 2) 

' 2U.S.C.§438(b). 

^ These figures have been revised to exclude the Payroll Account; see Additional Issue 1. 
Final Audit Report of the 

Commission on the Georgia 

Federal Elections Committee 

(January 1, 2005 - December 31, 2006) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Changes to the Law 

Audit Hearing 

Part II. Overview of Conunittee 

Committee Organization 

Overview of Financial Activity 

Part III. Sununaries 

Conunission Findings and Additional Issues 

Part IV. Conunission Findings 

Fmding 1. Misstatement of Financial Activity 

Findmg 2. Recordkeeping for Salaries and Related Expenses 

Finding 3. Disclosure of Occupation/Name of Employer 

6 

8 

10 

Part V. Additional Issues 

Issue 1. Misstatement of Financial Activity - Payroll 

Issue 2. Non-federal Funding for Possible Federal Activity 

13 

15 
Parti 

Background 

Authority for Audit 

This report is based on an audit of tiie Georgia Federal Elections Coinmittee (GFEC), 

undertaken by the Audit Division of the Federal Election Conunission (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 if the reports filed by a particular coinmittee 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 and non-federal accounts. 

4. The consistency between reported figures and bank records. 

5. The completeness of records. 

6. Other committee operations necessary to the review. 

Changes to the Law 

On December 1,2005, the Coinmission voted to amend its mles to require state, district 

and local party committees to pay as administrative expenses the salaries, wages and 

fringe benefits of employees who spend 25 percent or less of their compensated time in a 

month on Federal Election Activity (FEA) or activity in connection witii a Federal 

election ("covered employees"). The Supreme Court m Shays v. FEC stmck down the 

previous regulation that allowed party conunittees to use non-federal fimds for salaries 

and wages for covered employees. Hie revised mle became effective on January 19, 

2006. 

Audit Hearing 

GFEC requested a hearing before the Commission. The request was granted and the 

hearing was held on June 16,2010. At the hearing, GFEC addressed only issues related 

to an account used for payroll. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration June 14,1976 

• Audit Coverage January 1,2005 - December 31,2006 

Headquarters Atlanta, Georgia 

Bank Information 

• Bank Depositories One 

• Bank Accounts Six Federal, Six Non-Federal, One Levin, 

One Payroll 

Treasurer 

• Treasurer When Audit Was Conducted Rex Templeton, Febmary 6,2007 -

March 20,2011 

• Treasurer During Period Covered by Audit Jeffrey J. DiSantis, June 19,2003 -

Febmary 6,2007 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 
Overview of Financial Activity 

(Audited Amounts) ® 

Cash-on-hand @ January 1,2005 $ 17,342 

Receipts 

o Contributions from Individuals 831,477 

o Contributions from Other Political Committees 349,991 

o Transfers from Affiliated Party Committees 776,863 

o Offsets to Operating Expenditures 13,928 

o Transfers from Non-Federal Accounts 564,956 

o Other Federal Receipts 1,800 

Total Receipts $ 2,539,015 

Disbursements 

o Operating Expenditures 1,192,694 

o Contributions to Federal Candidates 12,323 

o Coordinated Party Expenditures 142,208 

o Contribution Refimds 5,800 

o Federal Election Activity 701,728 

o Transfers to Non-Federal Accounts 460,783 

o Other Federal Disbursements 2,047 

Total Disbursements $2,517,583 

Cash-on-hand @ December 31,2006 $ 38,774 

Levin Cash-on-hand @ January 1,2005 $ 6,886 

Total Levin Receipts 750 

Total Levin Disbursements 7,210 

Levin Cash-on-hand @ December 31,2006 $ 426 

^ These figures have been revised to exclude the Payroll Account; see Additional Issue 1. 
Part III 

Summaries 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

A comparison of GFEC's reported financial activity with bank records, excluding its 

Payroll Accoimt (See Additional Issue 1. below), revealed a misstatement of receipts and 

disbursements in both 2005 and 2006, and an understatement of cash on December 31, 

2006. In 2005, GFEC imderstated receipts by $17,125 and disbursements by $23,951. In 

2006, GFEC understated receipts by $3,922 and overstated disbursements by $21,969. 

GFEC understated its reported cash balance on December 31,2006, by $20,291. In 

response to the Interim Audit Report, GFEC filed amended reports which corrected the 

misstatements noted above, excludmg transactions relating to the Payroll Account. The 

Commission approved this finding. (For more detail, see p. 6.) 

Finding 2. Recordkeeping for Salaries and Related Expenses 

GFEC failed to provide supporting documentation detailing the time spent on federal 

activities for employees whose eamings and related payroll expenses were allocated on 

Schedules H4 (Disbursement for Allocated Federal/Nonfederal Activity) totaling 

$231,366. In response to the Interim Audit Report, GFEC provided declarations from its 

employees whose salary payments were allocated on Schedules H4 that showed these 

payments were allocable and therefore, correctiy reported. The Commission approved 

this finding. (For more detail, see p. 8.) 

Finding 3. Disclosure of Occupation/Name of Employer 

A review of contributions from individuals revealed that 71 contributions totaling 

$170,474 lacked, or did not adequately disclose, the contributor's occupation and/or 

name of employer. Furthermore, GFEC provided no evidence that it made "best efforts" 

to obtain, maintain and submit the information. In response to the Interim Audit Report, 

GFEC filed amended reports disclosing the information it had acquired as a result of its 

contact with the contributors. The Commission approved this finding. (For more detail,' 

see p. 10.) 
Additional Issues 

Pursuant to Commission Directive 70,^ the following matters are discussed in the 

"Additional Issues" section. (For more detail, see p. 13.) 

Issue 1. Misstatement of Financial Activity - Payroll 

During audit fieldwork, the Audit staff noted that GFEC maintained a separate account 

used to make federal, non-federal and allocated payroll disbursements (Payroll Accoimt). 

GFEC did not report the non-federal activity from the Payroll Account. The Audit staff 

included the unreported non-federal activity in its Misstatement of Financial Activity 

fmding in the Interim Audit Report. In response to that report, and in a subsequent 

hearing, GFEC counsel disagreed that the non-federal transactions related to the Payroll 

Account were reportable to the Coinmission. Counsel stated tiiat the Payroll Account 

was created to acconunodate GFEC's payroll processing vendor, which would not draw 

fimds to process payroll from multiple accounts. The Audit staff recommended tiiat the 

Payroll Accoimt be considered an allocation account and all receipts and disbursements 

should therefore have been reported to the Conunission. 

The Commission did not approve the Audit staffs recommended finding by the requured 

four votes. 

Issue 2. Non-Federal Funding for Possible Federal Activity 

During tiie period audited, GFEC made 68 transfers totaling $628,254 from its nonfederal account to its Payroll Account. GFEC used these transfers to fimd payroll tiiat it 

considered to be non-federal. Without supporting documentation to show its payroll was 

not related to I^A, the Audit staff considered all disbursements made from GFEC's 

Payroll Account to be for federal activity, reportable on Schedules B (Itemized 

Disbursements). Absent any further documentation, that analysis would have required 

tiiat $478,715 be retumed to the non-federal account. In response to tiie Interim Audit 

Report, GFEC provided declarations from several employees attesting that they spent 

littie or no time workmg on federal activities during the months in which all, or a portion, 

of their payroll was paid with non-federal funds. As a result, no transfer of fimds back to 

the non-federal accoimt was needed. 

The Coinmission did not approve the Audit staffs recommended finding by the requued 

four votes. 

* Available at http://www.fec.gov/directives/directive_70.pdf. 
Part IV 

Commission Findings 

I Finding 1. Misstatement of Financial Activity | 

Summary 

A comparison of GFEC's reported financial activity with bank records, excluding its 

Payroll Account (See Additional Issue 1. below), revealed a misstatement of receipts and 

disbursements in botii 2005 and 2006 and an understatement of cash on December 31, 

2006. hi 2005, GFEC understated receipts by $17,125 and disbursements by $23,951. hi 

2006, GFEC understated receipts by $3,922 and overstated disbursements by $21,969. 

GFEC understated its reported cash balance on December 31,2006 by $20,291. In 

response to the Interim Audit Report, GFEC filed amended reports, which corrected the 

misstatements noted above, excluding transactions relating to the Payroll Account. The 

Conunission approved this tinding. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amount of cash-on-hand at the beginning and end of the 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 Schedules A (Itemized Receipts) or 

Schedules B. 2 U.S.C. §434(b)(l), (2), (3), (4), and (5) and §434(e)(2), (3), and (4). 

Facts and Analysis 

A. Facts 

In 2005 and 2006, GFEC did not report any wholly non-federal activity from its Payroll 

Account. GFEC reasoned that this account was needed only because its payroll vendor 

would not make withdrawals from multiple accounts. GFEC reported the activity related to 

federal payroll and payroll that was allocable between the federal and non-federal accoimts. 

In the Interim Audit Report, the Audit staff included the Payroll Account m the analysis as 

a federal account tiiat was fully reportable. The Commission did not approve by the 

required four votes the Audit staff recommendation that the Payroll Accoimt was a federal 

account requiring complete disclosure. (See Additional Issue 1. below.) The analysis 

presented below excludes the wholly non-federal share of the Payroll Account. 

The Audit staff reconciled GFEC's reported financial activity with its bank records for 

2005 and 2006. Below are charts that ouUine the discrepancies in both years, followed by 

explanations of the misstatements, if known. 
2005 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 1,2005 

$16,116 $17,342 $1,226 

Understated 

Receipts $414,202 $431,327 $17,125 

Understated 

Disbursements $418,781 $442,732 $23,951 

Understated 

Ending Cash Balance 

©December 31,2005 

$11,537 $5,937 $5,600 

Overstated 

The $1,226 understatement of begmning cash-on-hand was due to prior period errors. 

The understatement of receipts resulted from the following: 

• Unreported contributions from political committees 

• Unexplained difference 

Understatement of Receipts 

The understatement of disbursements resulted from the following: 

• Unreported transfers: federal accoimts to non-federal accoimts 

• Inter-account transfers from federal accoimts to Payroll 

Account erroneously reported 

• Unexplained difference 

Net Understatement of Disbursements 

+ 

+ 

$17,000 

125 

$17,125 

$34,018 

2,895 

7,172 

$23,951 

On December 31,2005, GFEC overstated its cash balance by $5,600 as a result of the 

errors described above. 

2006 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 1,2006 

$11,537 $5,937 $5,600 

Overstated 

Receipts $2,103,766 $2,107,688 $3,922 

Understated 

Disbursements $2,096,820 $2,074,851 $21,969 

Overstated 

Ending Cash Balance 

©December 31,2006 

$18,483 $38,774 $20,291 

Understated 

The understatement of receipts resulted from the followmg: 

• Transfer from national party conunittee not reported 

• Unexplained difference 

Net Understatement of Receipts 

+ $5,000 

_- 1,078 

$3,922 
The overstatement of disbursements resulted from the following: 

• Reported transfers from federal accoimt to non-federal - $27,550 

account not traced to bank 

• Unreported transfers: federal accoimt to non-federal account + 258 

• Unexplained difference + 5,323 

Net Overstatement of Disbursements $21,969 

On December 31,2006, GFEC understated its cash balance by $20,291 as a result of tiie 

errors described above. 

B. Interim Audit Report & Audit Division Recommendation 

In the Interim Audit Report, the Audit staff recommended that GFEC amend its 2005 and 

2006 reports to correct the misstatements noted above. The amended reports were to 

include appropriate Schedules A and B, a memo text with each amended item stating that 

"the transactions are being disclosed as a result of the 2005-2006 cycle FEC audit." 

Audit staff further recommended that GFEC reconcile the cash balance on its most recent 

report to identify any subsequent discrepancies that may impact adjustments 

recommended by the Audit staff. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, GFEC filed amended reports correcting the 

errors detailed above. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that GFEC amended its 

reports to materially correct the misstatements presented above. 

Commission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

findmg tiiat GFEC misstated its financial activity for botii 2005 and 2006 including 

activity in its Payroll Accoimt. (See Additional Issue 1. below.) 

The Conunission approved the Audit staffs recommendation with the exception of 

activity related to the Payroll Accoimt. 

I Finding 2. Recordkeeping for Salaries and Related Expenses 

Swnmary 

GFEC failed to provide supporting documentation detailmg the time spent on federal 

activities for employees whose eamings and related payroll expenses were allocated on 

Schedules H4 totaling $231,366. In response to tiie Interim Audit Report, GFEC 

provided declarations from its employees whose salary payments were allocated on 
Schedules H4 that showed these payments were allocable and therefore, correctiy 

reported. The Commission approved this finding. 

Legal Standard 

A. Reporting Allocable Expenses. A political conunittee that allocates federal/nonfederal expenses must report each disbursement it makes from its federal account (or 

separate allocation account) to pay for a shared federal/non-federal expense. Committees 

report these kinds of disbursements on Schedules H4. 11 CFR §104.10(b)(4). 

B. Costs allocable by State party committees between Federal and Non-federal 

accounts (Effective prior to January 19,2006). State party committees must pay salaries 

and wages from funds that comply with State law for employees who spend 25 percent or 

less of their time in any given month on federal election activity. 11 CFR § 106.7(c)(1). 

C. Costs allocable by State party committees between Federal and Non-federal 

accounts (Effective on January 19,2006). State party committees must either pay 

salaries, wages and fringe benetits for employees who spend 25 percent or less of their 

time in a given month on federal election activity with fimds from their federal account, 

or with a combination of funds from their federal and non-federal accounts. 11 CFR 

§ 106.7(c)(1), as amended January 19,2006. 

D. Recordkeeping: Salaries and Wages. Conunittees must keep a monthly log of the 

percentage of time each employee spends in connection with a federal election. Salaries 

and wages for employees who spend more than 25 percent of theu compensated time m a 

given month on federal election activity or activities in connection with a federal election 

must be paid only from a federal accoimt. 11 CFR §106.7(d)(l)(ii). 

Facts and Analysis 

A. Facts 

The Audit staffs review of payroll expenses reported on Schedules H4 revealed that 

GFEC failed to maintain supporting documentation detailing the time spent on federal 

activities for employees whose salaries and related expenses totaled $231,366. Absent 

the supporting documentation, GFEC should have disclosed these salary and related 

expenses as non-allocable FEA on Schedules B, Line 30b, (Federal Election Activity 

Paid Entirely with Federal Funds). 

The Audit staff discussed this matter with GFEC's representatives during tiie audit and 

requested monthly logs, timesheets and affidavits. GFEC representatives were unable to 

locate any of the items requested. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, GFEC representatives stated that they did not believe any of the 

undocumented activity from the Payroll Account was for FEA. 
10 

In the Interim Audit Report, the Audit staff recommended that GFEC provide monthly 

logs or time sheets attesting to the time spent by employees for the period employed by 

GFEC, or affidavits stating that these employees did not spend more than 25 percent of 

their time on FEA or activities in coimection with a federal election, and amend its 

disclosure reports accordingly. Audit staff also recommended that GFEC report any 

disbursements that it could not show were allocable or solely non-federal on Schedules B, 

line 30b (Federal Election Activity Paid Entirely with Federal Funds), and include a 

memo text with each amended item stating that '*the transactions are being disclosed as a 

result of tiie 2005-2006 cycle FEC audit." 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, GFEC provided declarations from its employees 

attesting that during relevant months in which the employees' payroll was fimded entirely 

or partially by non-federal funds, they worked less than 25 percent on activities in 

coimection with a federal election. GFEC also noted that the Conunission's regulations 

regarding payment of payroll for those employees who did not meet the 25 percent 

threshold changed in January 2006 and that GFEC correctly amended its payroll 

procedures to comply with these new requuements. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that GFEC provided 

declarations from its employees attesting that during the relevant months in which the 

employees' payroll was fimded by at least a portion of non-federal fimds, each employee 

worked less than 25 percent on activities in connection with a federal election. 

Commission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Coinmission adopt a 

fmding that GFEC had not maintained adequate documentation detailing the time spent 

on federal activities for employees whose eamings and related payroll expenses were 

allocated on Schedules H4. 

The Commission approved the Audit staffs recommendation. 

I Finding 3. Disclosure of Occupation/Name of Employer 

Summary 

A review of contributions from individuals revealed that 71 contributions totalmg 

$170,474 lacked, or did not adequately disclose, the contributor's occupation and/or 

name of employer. Furthermore, GFEC did not provide any evidence tiiat "best efforts" 

were made to obtain, maintain and submit the information. In response to the Interim 

Audit Report, GFEC filed amended reports disclosing the information it had acquued as a 

result of its contact with the contributors. The Commission approved this finding. 
11 

Legal standard 

A. Itemization Required for Contributions from Individuals. A political committee 

other than an authorized committee must itemize any contribution from an individual if it 

exceeds $200 per calendar year, either by itself or when combined with other 

contributions from the same contributor. 2 U.S.C. §434(b)(3)(A). 

B. Required Infonnation for Contributions from Individuals. For each itemized 

contribution from an mdividual, the committee must provide the following information: 

• the contributor's full name and address (including zip code); 

• the contributor* s occupation and the name of his or her employer; 

• the date of receipt (the date the committee received the contribution); 

• the amoimt of the contribution; and 

• the calendar year-to-date total of all contributions from the same mdividual. 11 

CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A). 

C. Best Efforts Ensures Compliance. When the treasurer of a political committee 

shows that the committee used best efforts (see below) to obtain, maintam and submit the 

information required by the Act, the committee's reports and records will be considered 

m compliance witii the Act. 2 U.S.C. §432(h)(2)(i). 

D. Definition of Best Efforts. The treasurer and the committee will be considered to 

have used "best efforts" if the committee satisfied all of the followmg criteria: 

• All written solicitations for contributions included: 

o a clear request for the contributor's full name, mailing address, occupation, 

and name of employer; and 

o the statement that such reportmg is required by federal law. 

• Withm 30 days after the receipt of the contribution, the treasurer made at least one 

effort to obtam the missing mformation, in either a written request or a 

documented oral request. 

• The treasurer reported any contributor information that, although not initially 

provided by the contributor, was obtained in a follow-up communication or was 

contained in the committee's records or in prior reports that the conunittee filed 

during the same two-year election cycle. 11 CFR § 104.7(b). 

Facts and Analysis 

A. Facts 

A review of contributions from individuals revealed that 71 contributions totalmg 

$170,474 lacked, or did not adequately disclose, tiie contributor's occupation and/or 

name of employer. This represents 23 percent of the dollar value of mdividual 

contributions itemized by GFEC. The committee disclosed most of these contributions 

with a notation of "information requested." 

The Audit staff asked a GFEC representative to provide documentation in support of their 

best efforts procedures. In response, the GFEC representative explained that tiie original 

solicitations and follow-up letters to the contributors contained a request for the 
12 

occupation and name of employer information and that any information received would 

be provided to the auditors for review. To date, GFEC has provided no such information. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter with GFEC representatives at the exit conference 

and provided a list of the itemized contributions that lacked, or did not adequately 

disclose, the required occupation and/or name of employer information. 

The Audit staff recommended that GFEC provide documentation that it exercised best 

efforts to obtain, maintain and submit the required contributor information, make an 

effort to contact those individuals for whom the required information was not in GFEC 

files and provide documentation of such efforts (such as copies of letters/email to the 

contributors and/or phone logs), and file amended reports to disclose any information in 

GFEC's possession as well as information obtained in response to this recommendation. 

C. Committee Response to the Interim Audit Report 

In response to the Interim Audit Report, GFEC filed amended reports disclosing the 

occupations and names of employers it had obtained in accordance with the Interim Audit 

Report recommendation. To document best efforts, GFEC also submitted a description 

of its attempts to gather information from contributors it was unable to contact. GFEC 

stated that it has undertaken procedural changes to its operations to ensure ongoing 

compliance with best efforts regulations. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that GFEC filed amended 

reports disclosing the occupations and names of employers it had obtamed in accordance 

with the Interim Audit Report recommendation. GFEC's attempts to gather information 

from contributors and its procedural changes made to ensure ongoing compliance were 

also acknowledged. 

Conmiission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

finding tiiat GFEC had not adequately disclosed its contributors' occupations and/or 

names of employers. 

The Commission approved the Audit staffs recommendation. 
13 

Partv 

Additional Issues 

I Issue 1. Misstatement of Financial Activity - Pajrroll 

Summary 

During audit fieldwork, tiie Audit staff noted that GFEC maintained a separate accoimt 

used to make federal, non-federal and allocated payroll disbursements (Payroll Account). 

GFEC did not report the non-federal activity from the Payroll Accoimt. The Audit staff 

included the unreported non-federal activity in its Misstatement of Financial Activity 

finding in the Interim Audit Report. In response to that report, and m a subsequent 

hearing, GFEC counsel disagreed that tiie non-federal transactions related to the Payroll 

Account were reportable to the Conunission. Counsel stated tiiat the Payroll Accoimt 

was created to accommodate GFEC's payroll processing vendor, which would not draw 

funds to process payroll from multiple accounts. The Audit staff reconunended tiiat the 

Payroll Accoimt be considered an allocation account and all receipts and disbursements 

should therefore have been reported to the Conunission. 

The Commission did not approve the Audit staffs recommended finding by tiie requued 

four votes. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amoimt of cash on hand at the beginning and end of the reporting period; 

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

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

and 

• certam transactions that requue itemization on Schedules A or Schedules B. 2 U.S.C. 

§434(b)(l), (2), (3), (4), and (5) and §434(e)(2), (3), and (4). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled reported activity with bank records for 

2005 and 2006. During tiiis time, GFEC used a Payroll Account for federal, non-federal 

and allocable payroll expenses. A comparison of GFEC's reported financial activity with 

bank records for its Payroll Accoimt revealed that GFEC did not report wholly nonfederal payroll expenses paid from this account in either year. In 2005, GFEC did not 

report receipts and disbursements of $505,984 and $500,014 respectively, and in 2006 

GFEC did not report receipts and disbursements of $122,391 each. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff presented this matter at the exit conference. GFEC representatives 

disagreed that the Payroll Accoimt was a federal accoimt and explained that the Payroll 

Account was used like an "escrow account." They stated that GFEC created this account 
14 

to accommodate its payroll processing vendor, which would not draw funds to process 

payroll from multiple accoimts. GFEC representatives said that this accoimt was not a 

federal account and its non-federal activity was not reportable to the Commission. 

The Audit staff recommended that GFEC amend its reports to include the Payroll 

Account. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, GFEC counsel stated that GFEC did not believe 

that the "payroll escrow account" was a federal accoimt and that GFEC did not intend to 

frle amended reports to reflect the non-federal portion of the Payroll Account's activities. 

Counsel stated tiiat the account was a transmittal account for both federal and non-federal 

fimds, rather than a federal account. Counsel believed that disclosure of the non-federal 

portion of this account was unnecessary and incorrect. 

D. Draft Final Audit Report 

In the Draft Final Audit Report the Audit staff stated that it believed the account acted as 

an allocation accoimt, a federal accoimt from which committees must report all federal 

and non-federal activity. 

E. Audit Hearing 

On June 16,2010, GFEC counsel attended an audit hearing to discuss the Payroll 

Account. GFEC counsel explained that GFEC's payroll vendor requured that only one 

bank accoimt could be debited in order for that company to issue payroll checks. In order 

for GFEC to acconunodate that requirement, a transmittal account was set up solely for 

the purpose of collecting payroll fiinds in one account so that the payroll company could 

debit that account and issue payroll checks. 

GFEC counsel emphasized that the non-federal portions of payments made to employees 

whose salaries were allocable were fust transferred to GFEC's federal accoimt and 

properly reported to the Commission before being forwarded to the transmittal account. 

Further, funds used to pay non-federal employees went directiy from GFEC's non-federal 

account to the transmittal account. Counsel stated that this would be no different than if a 

check had gone from GFEC's non-federal account duectiy to the employee. 

Commission Conclusion 

On March 3,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

findmg that GFEC was required to report all receipts and disbursements related to the 

Payroll Account but was not required to file any further amended reports. 

The Commission did not approve the Audit staffs reconunended finding by the required 

four votes. The Conunission adopted a motion to approve the Misstatement of Financial 

Activity finding excluding the activity related to the Payroll Account. The Coinmission 

agreed tiiat GFEC was not required to file further amended reports related to the Payroll 

Accoimt. 
15 

I Issue 2. Non-Federal Funding for Possible Federal Activity 

Summary 

During the period audited, GFEC made 68 transfers totalmg $628,254 from its nonfederal account to its Payroll Account. GFEC used tiiese transfers to fimd payroll that it 

considered to be non-federal. Without supporting documentation to show its payroll was 

not related to FEA, the Audit staff considered all disbursements made from GFEC's 

Payroll Accoimt to be for federal activity, reportable on Schedules B. Absent any further 

documentation, that analysis would have required that $478,715 be retumed to the nonfederal account. In response to the Interim Audit Report, GFEC provided declarations 

from several employees attesting that they spent littie or no time workmg on federal 

activities during the months in which all or a portion of their payroll was paid with nonfederal fimds. As a result, no transfer of fimds back to the non-federal account was 

needed. 

The Commission did not approve the Audit staffs reconunended fmding by the requued 

four votes. 

Legal Standard 

A. Accounts for Federal and Non-federal Activity. A party committee that finances 

political activity in connection with both federal and non-federal elections shall establish 

two accounts (federal and non-federal) and allocate shared expenses, those that 

simultaneously support federal and non-federal election activity, between the two 

accoimts. Altematively, the conunittee may conduct both federal and non-federal activity 

from one bank account, considered a federal account. 11 CFR §102.5(a)(l)(i). 

B. Paying for Allocable Expenses. Coinmission regulations offer party committees two 

ways to pay for allocable shared federal/non-federal expenses. 

• They may pay the entue amount of the shared expense from the federal account 

and transfer funds from the non-federal account to the federal accoimt to cover the 

non-federal share of that expense or 

• They may establish a separate, federal allocation account into which the committee 

deposits funds from both its federal and non-federal accoimts solely for the 

purpose of paying the allocable expenses of shared federal/non-federal activities. 

11 CFR §106.5(g)(l)(i) and (ii)(A). 

C. Reporting Allocable Expenses. A political committee that allocates federal/nonfederal expenses must report each disbursement it makes from its federal account (or 

separate allocation accoimt) to pay for a shared federal/non-federal expense. Committees 

report these kinds of disbursements on Schedules H4. 11 CFR § 104.10(b)(4). 

D. Costs allocable by State party committees between Federal and Non-federal 

accounts (Effective prior to January 19,2006). State party committees must pay salaries 

and wages from fimds that comply with State law for employees who spend 25 percent or 

less of their time in any given month on federal election activity. 11 CFR § 106.7(c)(1). 
16 

E. Costs allocable by State party committees between Federal and Non-federal 

accounts (Effective on January 19,2006). State party conunittees must either pay 

salaries, wages and fringe benefits for employees who spend 25 percent or less of theu 

time in a given month on federal election activity with funds from their federal accoimt, 

or with a combination of fimds from their federal and non-federal accounts. 11 CFR 

§ 106.7(c)(1), as amended January 19,2006. 

F. Recordkeeping: Salaries and Wages. Conunittees must keep a montiily log of the 

percentage of time each employee spends m coimection with a federal election. Salaries 

and wages for employees who spend more than 25 percent of their compensated time in a 

given month on federal election activity or activities in connection with a federal election 

must be paid only from a federal accoimt. 11 CFR §106.7(d)(l)(ii). 

Facts and Analysis 

A. Facts 

GFEC made 68 transfers totalmg $628,254 from its non-federal accounts into its Payroll 

Account. GFEC used these transfers to fund payroll that it considered to be non-federal. 

Without supportmg documentation to show its payroll was not related to FEA, the Audit 

staff considered all disbursements made from GFEC's Payroll Account to be for federal 

activity, reportable on Schedules B, Line 30b of the Detailed Sununary Page (Federal 

Election Activity Paid Entuely with Federal Funds). 

An analysis of transactions other than payroll showed that GFEC transferred $149,539 less 

than it could have from its non-federal accoimt to its federal account to pay for allocable 

expenses. This resulted in GFEC's non-federal accoimt potentially overfimding its Payroll 

Account by $478,715 ($628,254 - $149,539). 

During audit fieldwork, the Audit staff made several requests for GFEC to provide 

documentation to demonstrate its non-federal account was not financing federal activity 

through its payroll disbursements. 

B. Interim Audit Report & Audit Division Recommendation 

At tiie exit conference, GFEC representatives stated tiiat tiiey did not believe any of the 

unreported activity from the Payroll Account was for FEA. 

In the Interim Audit Report, the Audit staff recommended that GFEC provide monthly 

logs or time sheets attesting to the time spent by individuals employed by GFEC, or 

affidavits stating that these employees did not spend more that 25 percent of theu time on 

FEA or activities in connection with a federal election, and amend its disclosure reports 

accordmgly. Audit staff also recommended that GFEC report any disbursements that it 

could show were solely non-federal as "Other Disbursements," and report any 

disbursements that GFEC could not show were allocable, or solely non-federal, as FEA. 
17 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report, GFEC provided declarations from its employees 

attesting that during montiis in which the employees' payroll was fimded entirely, or 

partially, by non-federal funds, they worked less than 25 percent, or no time at all, on 

activities in coimection with a federal election. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, tiie Audit staff acknowledged tiiat GFEC provided 

declarations from several of its employees attesting that during the relevant months, the 

employees worked less than 25 percent or not at all on activities in connection with a 

federal election. 

Commission Conclusion 

On March 3,2011, tiie Conunission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

finding that the system for fimding payroll in place during the audited period did not 

comply with the regulations, but that tiie filing of additional amended reports was 

unnecessary. The Audit Division Recommendation Memorandum also noted that GFEC 

had demonstrated that it did not fimd federal activity with non-federal funds. 

The Commission did not approve tiie Audit staffs reconunended finding by tiie requued 

four votes. The Coinmission considered a motion to modify tiie finding to delete the 

discussion of the non-federal expenses paid from the Payroll Account on the grounds that 

it does not have jurisdiction to impose recordkeeping and documentation requirements on 

employee activity that a state party committee claims is solely non-federal. That motion 

did not receive the required four affirmative votes.