Draft Final Audit Report of the 

Audit Division on the Minnesota 

Democratic-Farmer-Labor Party 

(January 1, 2007 - December 31, 2008) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that 

is required to file reports 

under the Federal 

Election Campaign Act 

(the Act). The 

Coinmission generally 

conducts such audits 

when a committee 

appears not to have mej 

the threshold 

requirements for 

substantial compliance^ 

with the Ac* * TH? audit 

detennin|^.> l..-'iii-i ihc 

comn.iili-c complied 

with^tliy Jiir.itations, 

prohibit!o,i« u:id 

disclosure rcf |i • 11«- i nents 

of the Act. 

A 

Future Actioiw 

The Commission m ^ 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Coinmittee 

The Minnesota Democratic-Fag^-LaFor Party is a state party 

committee with headquarte^^R:. Paul, Minnesota. For more 

information, see the diart^^puie Coiniiiiitee Organization, p. 2. 

Financial ^tivit y (p. 3) 

• Receipts ^ 

o Individual Conlribulions 

Political ComiiMii-ji- C'oi.iributions 

'I i.MisliMs I:mil AfiViir.' 

I riiiislV.is irom Non-fedtM'sj 

Acciiiiiil.«> ^ 

RecSjiil l|i.:'!ii C'tirlpilitions 

Offsets nnd Otherlf^ceipts 

^TotalRec^ 

disbursemei 

Leratin^xpenditures 

election Activity 

Transfers to Non-federal Accounts 

mtributions to Candidates 

^Coordinated Expenditures 

Recount Expenditures 

Total Disbursements 

$ 1,839.117 

2.233,845 

5,898.356 

2.394.428 

694,850 

1.042.345 

$ 14,102,941 

$ 6.458,425 

6.398,033 

287.061 

20.000 

266.844 

660.719 

$ 14,091,082 

Findings and Recommendations (p. 4) 

• Misstatement of Financial Activity (Finding 1) 

• Overfunding of Federal Accounts by Non-federal Accounts 

(Finding 2) 

'2 U.S.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on the Minnesota 

Democratic-Farmer-Labor Party 

(January 1, 2007 - December 31, 2008) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Limitations 1 

•V 

Part II. Overview of Committee 

Committee Organization 2 

Overviewof Financial Activity * 3 

Part III. Smnmaries 

Findings and Recommendations 4 ^ 

• , \ F 

Part IV. Findings and Recommendations 

Finding 1. MisstatementofFinafi:!:il Activity 5 

Finding 2. Overfunding of Federai Aci:oiuii.s by Non-lcdcral Accounts 11 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Minnesota Democratic-Farmer-Labor Party 

(MNDFL), 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 ficlH investigations of any 

political committee that is required to file a report under 2 U.S||' iAM. Prior to 

conducting any audit under this subsection, the Commissiq^miisi perform an intemal 

review of reports filed by selected coinmittees to detennk^AvluMlKT.ihe reports filed by a 

particular committee meet the threshold requirements for^bstaniKil ciiiiipliance with tihe 

Act. 2U.S.C. §438(b). 

Scope of Audit ^ ^ 

Following Commission-approved procedures, tihc .\i.c!:-. <ikr dValuated various risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contribut 

2. the receipt of contributions from 

3. tihe disclosure of contributions recei 

4. the disclosure of disbursements, debts^ 

5. the disclosure of ex .•:.« J« . I'ocated 

6. the consistency b^- .-J:. :J: .-: -JC 

7. thecompletenpjSS "•.^r(l«: -iii 

8. other committee >:.-. •iivi\s ikwssarv to the 

d loans; 

ircd sources; 

ligai'.iii'.N: 

fedeic 1 .intl non-federal accounts; 

d bank i^ords; 

ew. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

Date of Registiration 

Audit Coverage 

July 15,1975^ ^ 

January 1,2007 December 31,2008 

Headquarters St. Paul. Mhnesoia 

Bank Information 

Bank Depositories 

Bank Accounts >unts jr 

•lederal Accounts 

Treasurer t 

Treasurer When Audit Was Conducicil Lori SellneT^ i-r^ February 8,2011] 

Hamlilon | as of Febmary 9. 2011] 

Treasurer During Period Covered by Au J. Da ^ [through Febmary 18, 2009] 

Management Information 

• Attended FEC Caj^iiii^n Fiiitin. -jSeminar 

• Who Handled Account inj: :i:.tl -

RecordkeeoiiiL'. Ta.sks 

Staff 

^ The committee registered with the Secretary of the Senate as the Minnesota Dollars for Democrats (a federal 

committee of the Minnesota Democratic-Famm'-Labor State Party). In 1980, the conunittee filed an Amended 

Statement of Organization, changing die name of the conunittee to the Minnesota Democratic-Farmer-Labor Party. 
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January 1,2007 $ 225,904 

Receipts 

o Individual Contributions $ 1,839.117 

o Political Committee Contributions 2,233,845 

o Transfers from Affiliates Ji^.356 

o Transfers from Non-federal Accounts 'X394>28 

o Recount Fund Contributions A 1^94,850 

o Offsets and Other Receipts "^^.345 

Total Receipts / \ $ 14,1^941 

Disbursements 

o Operating Expenditures . 6.458,425 ^ 

o Federal Election Activity ^ "=6,398,033 * 

o Transfers to Non-federal Accounts ,^ 287,061 

o Contributions to Candidates 20,000 

0 Coordinated Expenditures _ ^ 1^66,844 

0 Recount Expenditures % F 660,719 

Total Disbursements % > ^ 14,091,082 

A'. --^ ^ 

Cash-on-hand @ Decviiihi r 31,1^008 ^ k $ 237,763 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork. a comparison of the MNDFL's reported financial activity with its 

bank records revealed a misstatement of receipts and disbursen^^Hii calendar years 

2007 and 2008. The misstatements were due mainly to unre|)oi^ transfers from the 

non-federal accounts to the Payroll account and unreporte^cv.-.-.:-'* and operating 

expenditures. For 2007, tihe MNDFL understated receipWy $: - • .228 and 

disbursements by $469,230. For 2008, the MNDFLj§|^ated it-c;:ip:- i)y $1.303,611 

and disbursements by $1,205,799. In response tojiffm^m Audit i 

recommendation, the MNDFL amended its reiioris to malci ially correct ilic » 

misstatements noted above except for the repdiii-..' t*: ihe P^^oll account iran.^iictions 

related to the 100% non-federal employees. ^ 

Also, the MNDFL submitted docum^gj^n to show th.i; p.:: .ipparent prohibited 

contribution it received was, in fact, pJBUil^ibi'j. The MNDI I dsd not, however, 

include this contribution in its amended l^orii. tr;i: more dc'.iil. see p. 5.) 

Finding 2. Overfunding of F%[&al Accounts by Nonfederal Accoimts 

During audit fieldwork, an analysis of the MNBE^'S transfers from its non-federal 

accounts indicnii'd ili.ii ilic .M.N'DI I. iriay^ave^'erfunded its federal accounts by as 

much as $2'77,103. The ovcriiindiii}.', icr^Bpfrom unsupported transfers from the nonfederal a^)nni.N lo ilic loilcr.-.. .n-. o:iiiK. an overfunding of the Payroll account for the 

non-l(*diM-iil portion of |):iyi-oll,: .-nl imported federal activity paid from the non-federal 

accdnnis. 

In response lo iiic Interim .Audit Report recommendation, the MNDFL submitted 

additional docunicniuiion. in conjunction with its amended reports, which showed that it 

did not overfund iis federal account. (For more detail, see p. 11.) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of the MNDFL's reported financial activity with its 

bank records revealed a misstatement of receipts and disbursements in calendar years 

2007 and 2008. The misstatements were due mainly to unreported transfers from the 

non-federal accounts to the Payroll account and unreported rjK^pts and operating 

expenditures. For 2007, the MNDFL understated receipts^Wl I ••''28 and 

disbursements by $469,230. For 2008, the MNDFL und^ated • ^^pts by $1,303,611 

and disbursements by $1,205,799. In response to tl]g|^g|^mi Audin|t'|)ort 

recommendation, the MNDFL amended its repor^om^rially correci tlte 

misstatements noted above except for the repGg|m[{' of the Payroll accoui]^;!n>|etions 

related to the 100% non-federal employees. 

Also, the MNDFL submitted docum^tation to show iliai an apparent prohibited 

contribution it received was. in fact, ]icriiii.ssilile. The Ml^DI'L did not, however, include 

this contribution in its amended report':. . . ^ 

Legal Standard 

A. Contents of Reports. Each report mus'i||pi&lose: 

• the amount of (^sh-on-l^d at the b^Lming ancTend of the reporting period; 

• the total aqabuni oi' rece^^ for the repSi ii:':g period and for the calendar year; 

• the total amouni oi di.oburscinLMils for tl^reporting period and for the calendar 

year: and 

• c^^iin n aTi«t€TMQns that^[uire iteimzation on Schedule A (Itemized Receipts) or 

S^edule B (Hirr.vcd iSiR'ii-i ments). 2 U.S.C. §434(b)(l), (2), (3), (4) and (5). 

<. 

B. ReceVpl of Prohibited Contributions - General Prohibition. Candidates and 

coinmittees :\..\ not accep: cbntributions (in the form of money, in-kind contributions or 

loans) fcom tlic in:a.snry f in nis of the following prohibited sources: 

• corporations (ihismieans any incorporated organization, mcluding a non-stock 

corporation, an incorporated membership organization, and an incorporated 

cooperative)?^ 

• labor organizations; or 

• national banks. 2 U.S.C. §441b. 

C. Contributions by Limited Liability Companies (LLC). A limited liability 

company is a business entity tihat is recognized as same under the laws of the state in 

which it is established. An LLC that elects to be treated as a corporation by the Intemal 

Revenue Service under 26 CFR 301.7701-3 shall be considered a corporation pursuant to 

11 CFR Part 114. An LLC that makes a contribution to a candidate or committee shall 
provide information as to how the contribution is to be attributed and affirm that it is 

eligible to make the contribution. 11 CFR § 110.1(g). 

Facts and Analysis 

A. Facts 

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

bank records and identified a misstatement of receipts and disbursements for calendar 

years 2007 and 2008. The following charts detail the discrepancies between the totals on 

the MNDFL's disclosure reports and bank records. Succeeding pai.i&;^aphs explain why 

the discrepancies occurred. 4^ <^ 

2007Activitv 

Reported Jfa|nl^ecor(ls Discrepancy 

Beginning Cash Balance 

@ January 1.2007 

$212,947 ^^" ^ $225,904 $12,957 

Liulcrstated 

Receipts $1,381,8^ $1.S23.097 $441,228 

l^derstated 

Disbursements |1,409,884 SI.879,114 

.'.tk. 

$469,230 

Understated 

Ending Cash Balance @ 

December 31,2007 

511^,932 

\ • 

5>i5,b45 

Overstated 

The $12,957 uii.K-i^i.itcnicnl ol ilu- beginnilMrash balaijcc was likely due to prior-period 

reporting discrepancies." 

The understatement of ri:i.\-i;)K wii.s ilic result ol ^ following: 

• Tran^ii-i ^ i'i oin the non-lcdcial accouni.s to the Payroll Account 

lOOpcK'ciit non-lcdc:'iil payroll and benefits not reported 

^ .\o:i-payroll tr.i:!<^ier.s from d^^on-federal accounts not 

imni:k:d ^ 

• N(in ''.!v»':-al share of vendor refunds reported as a negative 

receipt on .Schedule H-3^ 

• Transfe: i:ivn the non-federal account reported twice 

• Unexplained tliilSrence 

Net Understatement of Receipts 

$ 395,072 

46.040 

24,261 

(5,000) 

(19,145) 

$ 441.228 

The understatement of disbursements was the result of the following: 

• 100 percent non-federal salaries, taxes and benefits paid fcom 

the Payroll account and federal accounts not reported 

$ 431,292 

^ A refund of the federal and non-federal share of allocable activity may be disclosed either as negative 

entries on Schedule H-4 or as a receipt on Line IS of Schedule A and a disbursement to the non-federal 

account for the non-federal share on Schedule H-4. 
Transfer to the non-federal account not reported 

Non-federal share of vendor refunds reported as a negative 

receipt on Schedule H-3 

Operating expenditures not reported 

Reported disbursements subsequently voided with no 

adjustment made to reports 

Reported disbursements not supported by a cancelled check 

Unexplained difference 

Net Understatement of Disbursements 

7,000 

24,261 

12.630 

(1.392) 

(4.173) 

(388) 

$ 469.230 

The $15,045 overstatement of the ending cash balance resulicd'irbm%ie reporting 

discrepancies noted above. 

2008 Activity A., 

Reported Bank Records ! Discrepancy 

Beginning Cash Balance 

@ January 1,2008 

$184,932 ^5169.887 ^15.045 

y^^erstated 

Receipts $10,976,233 S 12,27^.844 $1,303,611 

Understated 

Disbursements 

Ending Cash Balance @ 

December 31. 2008 

$1]1^^69 

$1^9 6 

$12,211,968 $1,205,799 

Understated 

$"82,767 

Understated 

The understatement oJ leceipt.s wus the resul^the following: 

• Transfers :doiii ill&noii federal account^Mhe Payroll Account 

for 100 percent 'cdrrnl payroll and benefits not reported 

• Nc>:i '. '.I.-insfcrs IVoin ihc non-fcdcral accounts not 

;oiiod 

federal shai^of vc!idi!r rciund^ leported as a negative 

id;;. j::n on Schedule 11-3 ^ 

RelL\;Ptenot reporlc;:' 

hi-kir^ii:. ribution- not reported 

Reported ^^'.^^Lj!^'!''^ sited non-federal account 

Reported re^^pthat did not clear the federal accounts 

• Unexplainedcifference 

Net Understatement of Receipts 

The understatement of disbursements was the result of the following: 

• 100 percent non-federal salaries, taxes and benefits paid from 

the Payroll account and federal accounts not reported 

$ 827,853 

108,975 

2,716 

402,186 

13,127 

(14,627) 

(21,243) 

(15.376) 

$ 1.303.611 

$ 591.524 

* Includes a $150,000 non-federal receipt deposited into the federal account in error (funds transferred 

to the non-federal account), an $81,000 reimbursement from the non-fed^al account for a non-federal 

expenditure paid by the federal account in error, a $61,000 transfer from a national party committee and a 

$16,000 transfer from an autfaorized committee. 
• Non-federal share of vendor refunds reported as a negative 2.716 

receipt on Schedule H-3 

• Operating expenditures not reported 406,312 

• Bank and credit card fees not reported 38,345 

• Transfers to non-federal accounts not reported 251,450 

• Reported disbursements paid from the non-federal accounts (51,105) 

• In-kind contributions not reported 16,111 

• Reported disbursements subsequently voided with no (33,666) 

adjustment made to reports 

• Reported disbursements not supported by a cancelled che^|^ (24,356) 

• Unexplained difference 8,468 

Net Understatement of Disbursements A % 1.205.799 

The $82,767 understatement ofthe ending cash bala^^^lted from the reporting 

discrepancies noted above. 

The discrepancies in financial activity noted occurro) primarily becaii.sc the 

MNDFL did not report certain payroll transactions invo.v hig lhe Payroll acount and the 

federal administirative accounts. The MNDFL separaicti ii^ employees into two classes: 

100 percent federal and 100 percent fi-deral. A .M.NDFI. representative stated that 

the MNDFL established the system to 'JJ^J lhe administralive liiiidcn of payroll 

processing. If an employee spent any liinc working on fedeiarnciiviiy during the pay 

period, he or she was paid 100 percent from federal iu'ricls rrai&erred to the Payroll 

account and the MNDFT di^^ Ir^ed the sal^^^menis on Schedule B. If an employee 

spent the pay period woi >yMy on non-l&eral acti^y, the MNDFL paid him or her 

100 percent from ncm h-di-i A ^Bis transferr^o the Payroll account and did not report 

the salary and relate<l i'o»:ts. ^ 

The MN]^. !):>i(! ..'1 -.ihiriesiand ivlati'd iMiiployee taxes from one Payroll account 

adminig^ed by MNDI I. ^laff and^ paid employee health insurance and retirement 

ben^^liom the fedei.i! .idininisSaiivi^accounts. Transfers from the federal and nonfederal acc-oiints funded the Payroll .iccount. The Audit staff included the Payroll 

account as a U'dcral account.^' The MNDFL disclosed only the federal activity paid out of 

die Payroll aci oi-.m and the portion of benefits relating to federal employees paid from 

the federal admiiii'^ti -i'lv.- .'iccounts. An analysis of the salaries paid to all employees 

during the audit pel uni showed tihat the MNDFL paid $3,176,793 (81 percent) of the 

salaries as 100 percofffederal and $756,744 (19 percent) as 100 percent non-federal. 

Subsequent to the period under audit, the MNDFL established a separate non-federal 

Payroll account. 

The MNDFL also processed the payroll costs for the employees of three federal 

candidate committees and included them in tiiie payroll amounts above. The candidate 

' There was no allocated payroll. 

A federai account means an acoount at a campaign dq)ository that contains frinds to be used in connection 

with a Federal election. 11 CFR §300.2(f). 
conunittees reimbursed the MNDFL to offset the payroll costs for their employees. The 

MNDFL and the candidate committees properly disclosed the salary payments and 

reimbursements. The MNDFL made expenditures for salary payments totaling $731,449 

and the candidate committees reimbursed the MNDFL $705,734. The salary payments in 

excess of the reimbursement amount ($25,715) resulted in an in-kind contributibn to tihe 

candidates from the MNDFL.^ 

A $10,000 contribution fcom South Clinton Street Investments, LLC (SCSI) was included 

among the 2008 unreported m-kind contributions. During the 2008 Democratic National 

Convention held in Denver, Colorado, tibe MNDFL contracted with the Four Points by 

Sheraton Denver Southeast to provide catering services for theMiiine|ota State 

delegation. On August 24,2008, the committee paid the hccfa deposit of $17,634. The 

hotel provided catering services on August 25 - 29,2008^c!:(i!:rigS36,943, leaving a 

balance due of $19,309. On September 22, 2008, thehoMappli^a S 10.000 check 

drawn on the operating account of SCSI to the Ml^i^^l^^count. The MNDFL did not 

report this in-kind contribution and during ^eld^\(^the Audit staff did noU^nd any 

documentation in the MNDFL's files to show^ai SCSI vhis permitted tbH^^fdie 

contribution. 

B. Interim Audit Report & Audit Di^ ision Recommendation 

At the exit conference, the Audit staff jii-ovificd ilic MNDI'-'l. representatives with work 

papers detailing the misstatements of iinaricial activiiy. incltlling tic apparent prohibited 

contribution. Regarding the Payroll account, counsel- for tihe MNDFL stated that the 

Payroll account was neither a federal nor l^o^cdcrnl a^pfttnt, but merely a passthrough account establjjsHcd to i educe the a^^istrativ^^rkload of the MNDFL, and 

that only the expenditiues relati'd to federal a%vity needed to be reported.^ 

The Audit staff and tlie MNDFl i j^-wMitativeKscussed the contribution from SCSI 

before and at ^hf exit conlcciK.-. I lu: A jdii ^^dff requested that MNDFL provide 

informatj^. i:. oi iliK-iimeritaiiiMi to show either that the payment was not a contribution 

or that .SC^SI was pe:-ni:ji.-d to ii.::kL* a contribution. The M^^DFL had not submitted any 

additional doLiMnciitation (i*':ccriiiiu! this matter as of the time of transmittal ofthe 

Interim Auci6.Report to ti.v MNDFL 

The Interim A ."i Kv:port ircommended that the MNDiPL: 

• amend its :\..' - - .o correct the misstatements for 2007 and 2008 as noted above; 

• amend its n. - - .• jent report to correct the cash-on-hand balance with an 

explanation ^t the change resulted from a prior period audit adjustment; 

^ The Audit staff concluded that the excess salary payments made on behalf of two of the candidates were 

permissible because they did not exceed tfae contribution limit for a state party committee to a federal 

candidate. For the remaining candidate, the in-kind contribution exceeded the contribution limit by 

$11,368. Since the MNDFL had not exceeded its limit for coordinated expenditures for this candidate, the 

Audit staff concluded that the excess payments were po'missible. 

' In the Final Audit Report of the Commission on the Georgia Federai Elections Committee (2006), where 

funds were transferred from federal and non-federal accounts to a payroll escrow account at the request of a 

tfaird-party payroll vendor tfaat could not draw funds from two different accounts, the Commission 

concluded diat the committee did not faave to amend its reports further in relation to transactions involving 

tfae payroll escrow account. 
10 

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

discrepancies that may affect the adjustment recommended by the Audit staff; and 

• provide evidence to show either that the unreported in-kind payment made by 

SCSI was not a contribution or that SCSI was permitted to meke a contribution. 

Absent such evidence, the Audit staff recommended that the MNDFL report the 

in-kind contribution and refimd $10,000 to SCSI. 

C. Committee Response to Interim Audit Report 

In response to die Interim Audit Report recommendation relating to the misstatement of 

financial activity, the MNDFL amended its reports to materially correct the 

misstatements noted above except for the reporting of the Payroll acc@tunt transactions 

related to tihe 100 percent non-federal employees. The amended reports filed in response 

to the Interim Audit Report show that receipts are under^pS by 1^95,072 for 2007 and 

$857,747 for 2008. Disbursements are understated bv $1^,311 for';.()() ' and $701,688 

for 2008. 

The MNDFL stated that it will not be am'jruling it^ ijporiltto include the non-federal 

Payroll account activity at this time because it bc!:j\t:s ih&d^^unt is not a federal 

account but rather a "pass-through account" not inicndcd lo pay any expenses other than 

the payroll expenses that are handlediin-liouse by the comndttee. The MNDFL believes 

that to require disclosure of these amoiinii i\i«uld result mi^n i!."!ificial increase of its 

federal activity and be confusing to die IC.KL*:> of ilicir disclo^nrc^eports. The MNDFL 

referenced the Commission's action prei%usly takcn in regard to the Georgia Federal 

Elections Committee (GFEOi. in which it %is_(liML'i inineif lhat tihe GFEC did not have to 

report the non-federal |),1>i iii'. vity. 

In the case of the @F I Cki separau-^ payroll accept was created in order to facilitate a 

single payment to a pay . |To. i'x-i::.:; \ *. i:r:i-: m approving the motion tihat the GFEC 

did not ha\c lo rcjioii the noi. •'. diM.il .!ei:\J^, :lie Commissioners advanced different 

rationalg^ Soir.c Comi-.iiNsii - - .licated agreement with the GFEC's argument that a 

payroll csciow accor-i:' i** :.cither. ^ddsral nor non-federal account, nor the "functional 

equivalciil" pf an alloca'ion accou;:i. Other Commissioners indicated that because the 

GFEC au^jioted that the'c(}mmi^ did not overfund federal payroll transactions by the 

non-federal acc^its, the payroll account was permissible in this context. Conversely, 

the audit of thel^^FL identified an overfunding of the payroll account by the nonfederal accounts tdiili:ii^02,663 (Findmg 2). 

The Audit staff maintains that the MNDFL's Payroll account is a federal account because 

the MNDFL used the account in a manner similar to an "allocation account." Unlike the 

payroll escrow account established by tihe GFEC, the MNDFL did not create the account 

at the request of a third-party vendor. Although the MNDFL did not allocate any payroll 

disbursements between federal and non-federal funds (employees were identified as 

eitfaer 100 percent federal or ICX) percent non-federal), funds were transferred from its 

federal and non-federal accounts to the Payroll account to pay salaries and taxes. 
11 

In addition, funds were transferred from the MNDFL's non-federal accounts to its federal 

administrative account to pay for the non-federal share of employee benefits. The 

MNDFL did not report these transfers initially and tihe Audit staff included them in the 

misstatement of financial activity presented in die Interim Audit Report. However, in 

response to the Interim Audit Report, the MNDFL amended its reports to include these 

transfers and to report the non-federal share of the benefits paid from its federal 

administrative account. The Audit staff believes there is no distinction in the requirement 

to report the non-federal activity associated with the MNDFL's federal administrative 

account or its Payroll account. Therefore, non-federal salaries and taxes from die 

MNDFL's Payroll account also require reporting. 

•' • ^ 

In response to the Interim Audit Report recommendation, the MNDFL submitted 

documentation to show that an apparent prohibited control ion^^|^eived was, in fact, 

permissible. The documentation supports that the M3^ M recei^^ permissible 

$10,000 in-kind contribution from tihe Denver 2008^fe^r^ion H ^ Committee 

(DCHC). However, it is noted that the MNDFl/^mended reports filed in iespouse to 

the Interim Audit Report did not include this in t^iit: contf^ution. ^ 

Finding 2. Overfunding ^ f Federal Accounts by Nonfederal Accounts ^ 

Summary ^ 

During audit fieldwork. an analysis of tihe ^^0hZ^ iiaii^^rs from its non-federal 

accounts indicated that ihc MNDFL may ham^overfundld its federal accounts by as 

much as $277,103^j^^^overfunding resulted^m unsupported transfers from the nonfederal accounts to th^^^ral accounts, an ovepl^ding of the Payroll account for the 

non-federal poi t ioi: of p^iill, andlieporicd Icdbral activity paid from die non-federal 

accounts. 

In r§js|)o-ix^- to the Inter:::! :\>!di: Kcnoffrecommendation, the MNDFL submitted 

additioi:.-! tl:. umentationj !.i conji]|^ion with its amended reports, which showed diat it 

did not ovi-::i ".d its federal account. 

'>i ... . 

Legal standard V 

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

political activity in oleetion with both federal and non-federal elections may establish 

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

simultaneously support federal and non-federal election activity - between Uie two 

accounts. Altematively, the committee may conduct both federal and non-federal activity 

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

B. Federal v. Non-federal Account The federal account may contain only those funds 

that are permissible under die federal election law. The non-federal account may contain 

funds diat are not permitted under federal law (but are legal under state law), such as 

contributions diat exceed the limits of the federal law and contributions from otherwise 
12 

prohibited sources, such as corporations and labor organizations. 11 CFR §102.5(a)(l)(i) 

and (a)(3). 

C. Transfers. Generally, a political coinmittee may not transfer fiinds from its nonfederal account to its federal account, except when tihe committee follows specific mles 

for paying for shared federal/non-federal election activity. 11 CFR §§102.5(a)(l)(i) and 

106.5(g). 

D. Paying for Allocable Expenses. The Commission regulations offer party committees 

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

• They may pay die entire amount of the shared expense fi|^^l^ federal account 

and transfer funds from the non-federal account to the lederal account to cover die 

non-federal share of that expense; or 

• They may establish a separate allocation account%i!o wliiuli the committee 

deposits funds from both its federal and nonJf^mMLCcounts toicly for die 

purpose of paying the allocable expenses^^^ai^ federal/no:: -fecieral activities. 

11 CFR §106.5(g)(l)(i) and (ii)(A). 

E. Reporting Allocable Expenses. A political commilte.- 'l:a^allocates feOisral/nonfederal expenses must report each di^rsement it make.^ li;pm its federal account (or 

separate allocation account) to pay for .• ^ . red fedei al^non-icleral expense. Committees 

report these kinds of disbursements on S; i'.-(bile H-4. 11 Cl-R § ^.17(b). 

F. Salaries and Wages. Committees mukk^i.-. mojitlily log of the percentage of time 

each employee spends :T''**^**¥"r*ion with afepteral elei tio.-.. Employees who spend 25 

percent or less of their dbmp-- \'-d time in %|iven month on Federal election activity or 

on activities in coined ^ widi a Federal elec&pjgiust either be paid only from the 

Federal account or be m^ ' "ed ;IN .sn admmistrJKe cost. 11 CFR § 106.7(d)(1). 

Facts Analysis 

A. Fai ls ^ 

During! audit 1 uildwork, tl:c- Audit ^taff identified a possible overfunding of MNDFL's 

federal acti\ ii\ with fund^ irom its non-federal accounts. The overfiinding was 

calculated to be* S277.10? and was based on the following:^ 

1. Underfundi.Ms-. ol Ihe non-federal portion of shared activity -

The MNDFl?reported a total of $1,055,437 as die non-federal share of allocated 

activity and reported $1,(K1,688 in transfers from the non-federal accounts to the 

federal accounts, resulting in an underfunding of $13,748. 

2. Overfiinding of non-federal payroll -

The MNDFL used a single Payroll account to pay employee salaries (Bodi 100 

percent federal and 100 percent non-federal employees. No employee salaries 

' The Audit staffs review of the transfer activity between the committee's federal and non-fed^al accounts 

initiially was limited because the MNDFL did not nuiintain adequate records to support tfae transfers. 
13 

were allocated.) and related taxes. The MNDFL paid employee benefits out of a 

federal administrative account and transferred fiinds from the federal and nonfederal accounts to the Payroll account to pay salaries and taxes. The MNDFL 

did not report any of tihe non-federal payroll activity. The MNDFL's total nonfederal payroll expenditures of $1,129,157 includes $756,744 for salaries, 

$226,155 for taxes and $146,257 for benefits. The MNDFL transferred a total of 

$1,215,520 from the non-federal accounts to the Payroll account for the nonfederal share of payroll, resulting in an overfunding of $86,363 ($1,215,520 -

$1,129,157) for die non-federal portion.^° 

3. Reported federal activity paid from non-federal accounts ^ \ 

The MNDFL reported $51,105 as federal activity paid from the non-federal 

accounts. Due to die lack of supporting documenbiion a\'ailable during audit 

fieldwork, the Audit staff initially was unable tp^ermir.L- whether the MNDFL 

reimbursed die non-federal accounts for any cp|^sFeported federal activity. 

4. Unsupported transfers from non-feder|||^punts -V ^ 

The MNDFL made unsupported trans^ilVo!:' :!.J Kt^-federal acconni.^ to the 

federal accounts totaling $38,263 for 2007 and s I! ."^.126 for 2008. 5ue to die 

lack of supporting documentsdpn available dm aiidil fieldwork, the Audit staff 

was unable to determine if thefianslcrs from the r:iqi ;Vt!*j.--al account were for the 

non-federal portion of shared aci[vii \. " 

The Audit staff identified a total of $103,4^ i||^iri:r.>icr.s from the federal accounts to 

non-federal accounts tl}|i'. .ck.\l adequate s^^orting d(jl!imentation detailing the 

purpose of die transli-r. If su|i|)t<r"d by doci&entation that shows the transfers were 

related to any of tM: ;'.c;iivity no:c.l above, the a^|pnt of overfunding by the non-federal 

accounts may In- u-iiiiLi-d. 

In sunui^i^, the Audit .sialf ca|^: L.'ed the apparent overfiinding by die non-federal 

accou: K':.lentified in lieklwork IHIIIKWS: 

UiuUwnding of noii-|ederd^ portion of shared activity ($ 13,748) 

OveiT^^ig of no:i-f|deral payroll 86,363 

Unsupp^K^d '•ransfiTs from non-federal accounts 153.383 

Reported i jdv-ral act ivity paid from non-federal accounts 51.105 

l otal overfiinding by the non-federal account $ 277.103 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided the MNDFL representatives with work 

papers detailing the transfer activity noted above. The MNDFL representatives provided 

no additional comments. 

The Audit staff recommended that the MNDFL provide documentation that showed: 

10 See committee statement conc^ning tfae Payroll account on page 8. 
14 

• diat the MNDFL did not make disbursements from the non-federal accounts for 

the purpose of financing federal activity; 

• that reported federal activity paid from the non-federal accounts was reimbursed 

by the federal accounts; and 

• that the unsupported transfers fcom the non-federal accounts were made for 

purposes other tihan federal activity. 

In addition, the Audit staff recommended that the MNDFL provide any additional 

comments and/or documentation to detail the purpose of the transfers of $103,450 made 

from die federal accounts to die non-federal accounts. 

' \ 

If the MNDFL was unable to provide any documentation t()^&pe the amount of 

overfunding noted above, die Audit staff recommended tliarmS^I.NDFL reimburse 

$277,103 to die non-federal account. . ' • ^ 

C. Committee Response to Interim Audit Rra^ 

In response to die Interim Audit Report recon^i^dgtion ^rFinding 1, the NM^FL filed 

amended reports tihat included the transfers from t^non f<|^^ account toJK federal 

account for the non-federal share of employee benefit^ |iayments. MNDFL submitted 

additional documentation that addressed the overfunding oi the Payroll account for the 

non-federal portion of die payroll, the imsii|)ported transli-i ^ lio:i! :he non-federal 

accounts and die apparent payment of federa I.activity by the imr.-lcderal account. The 

following summary details the changes rif^ltin^'. Ijigm lhe yQ^¥U% response. 

1. The underfundjil of lhe non-federal .share of allj&ble activity increased from 

$13,748 to S1.2>.'.960 because of the di-sdosure of the previously unreported, nonfederal shsffc Ol .•m|:!t)yceh)enefits and%ppsfers from the non-federal account to 

the federal acc.- .-i: I'oi die no:. u-ik-i.il -Mic of employee benefits payments. The 

noi.-:*\!i;.fc" -i.jreo! »!.ocahli-::w:i\.M> increased from $1,055,437 to $1,252,561 

I l.J ::^::l>•L•:^ lioni thj non-federal account for this activity increased from 

.'^l.041,688to''si.|.-l,60l 

2. 1 ..- L-! lunding t^:'^e Payroll account for the non-federal portion of the payroll 

increasiMkfrom $86^3 to $102,663. The increase was due to the removal of a 

transferl^jhe n^-federal account of $20,000, which was listed twice, and the 

addition ofl^^i. ^jSo for a transfer diat was deposited into a federal account in 

error, then si/,*^ jquendy transferred from the federal account to the Payroll 

account. 

3. The unsupported transfers of $153,383 firom the non-federal account were cleared 

by die submission of additional documentation and die amended disclosure 

reports filed by the MNDFL m response to Findmg 1 and the increase in the 

overfunding of die non-federal share of allocable activity discussed above. 

4. The apparent payment of federal activity by the non-federal account decreased 

from $51,105 to $8,833. The MNDFL demonstrated diat $31,529 was properiy 
15 

paid by the non-federal account, $16,785 was allocable activity ($6,042 is the 

federal share - 36 percent) and $2,791 is 100 percent federal activity. Theamended reports filed by the MNDFL corrected the misstatement of this activity. 

In summary, die response to the Interim Audit Report resulted in die followmg. 

Underfunding of non-federal portion of shared activity ($ 120.960) 

Overfunding of non-federal payroll 102.663 

Unsupported transfers from non-federal accounts -0-

Reported federal activity paid from non-federal accounts 8.833 

Total underfunding by die non-federal accouniv y ($ 9.464^^ 

As a result of its response to the Interim Audit Report Re||^hiiK'iul.ition, the MNDFL 

demonstrated sufficiently tihat it did not overfund its f^d^ accc .:-'s with funds from its 

non-federal accounts.