FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

MEMORANDUM 

August 27, 2009 

TO: 

THROUGH: 

FROM: 

SUBJECT: 

John D. Gibson 

Chief Compliance Officer 

Joseph F. Stoltz 

Assistant StafTDirector 

Audit Division 

Robert A. Hickey /ji ^ 

StafTDirector rr^<:^ M 

Christopher Hughey -^^^ ^ 

Deputy Generd Counsel' 

Lawrence L. Calvert, Jr. 

Associate Generd Coundl 

General Law and Advice 

Lorenzo Holloway 

Assistant Generd Counsel 

Public Finance and Audit Advice 

Allison T. Steinle /^TS 

Attomey 

Proposed Interim Audit Report on the Georgia Federal Elections 

Committee (LRA 793) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Interim Audit Report 

("IAR'*) on the Georgia Federal Elections Committee ("the Committee*'). Our comments 

address Findings 1 and 2. We concur with any findings not specifically discussed in this 

memorandum. If you have any questions, please contact Allison T. Steinle, the attomey assigned 

to this audit. 
Memorandum to John D. Gibson and Joseph F. Stoltz 

Proposed Interim Audit Report 

Georgia Federal Elections Committee (LRA 793) 

Page 2 ofS 

Both Findings 1 and 2 involve the Committee's payroll account. While the cover 

memorandum to the proposed IAR only requests a legal andysis for Finding 2, we also are 

providing a legd analysis for Finding 1 because we believe the two findings are interrelated. 

Specifically, our ultimate analysis of Finding 1 will depend on the documentation, if any, that the 

Committee can provide in response to Finding 2. Therefore, we address Finding 2 first. 

As background, we imderstand that the Committee established tiie payroll account in 

question to accommodate the restrictions imposed by its payroll vendor, Paychex, which would 

not draw the Committee*s payroll &om both its federd and non-federal operating accounts. 

Accordingly, the Coimnittee elected to set up a separate accoimt from which it makes its federal 

and non-federal payroll disbursements. The Committee states that this payroll account functions 

as an "escrow account*' because it is used exclusively to pay salaries and payroll taxes. The 

Committee states that it calculates the appropriate amount of federd and non-federal funds for 

each payroll period and transfers these fiinds from the federal and non-federal operating accounts 

to the payroll account, from which it pays all its federal, non-federal, and allocable employees. 

The Committee states it reports the federal and allocable payroll disbursements from this account 

on Schedule B or Schedule H4 as appropriate. However, the Committee cldms that this payroll 

account is neither a federal account nor an allocation account, and therefore it is not required to 

report entirely non-federal activity to the Commission. 

n. HNDING 2 - PAYMENT OF FEDERAL ACTIVITY WITH NON-FEDERAL FUNDS 

Finding 2 addresses the Committee's failure to maintdn supporting documentation 

detdling the time spent on federal activities for employees whose salaries and related expenses 

were pdd from the payroll account. State party committees must keep a monthly log 

documenting the percentage of time each employee spends in connection with a federd election. 

11 C.F.R. § 106.7(d)(1). If employees spend more than 25 percent of tiieir time on federal 

election activity ("FEA") or in connection with a federal election, their salaries and related 

expenses must be pdd only from a federal account. 11 CF.R. § 106.7(d)(l)(ii). If employees 

spend 25 percent or less of their time on FEA or activities in coimection with a federd election, 

they may be pdd either entirely with federal funds or at the same allocation rate as the 

committee's administrate expenses. 11 C.F.R. § 106.7(d)(l)(i). If employees spend all of their 

time on entirely non-federal activity, they may be pdd entirely with non-federd fimds. 11 C.F.R. 

§ 106.7(d)(l)(iii). 

In this case, the Committee claims that a portion of the payroll account—perhaps as 

much as 98 percent ofthe funds that passed through the account—was used to pay salaries and 

payroll taxes for employees who were engaged in exclusively non-federal activity.* However, 

' The proposed IAR states that "[the Conmiittee], which did not consider [the payroll] account to be a federal 

account, made several transfers into this account from both its non-federal and federal accounts and paid both its 

federal and non-federal eniployees from the account. However, very little of this activity (less than 2%) was 

reported on [the Committee's] disclosure reports to the Commission." It is our understanding that this means the 

Committee is claiming that less than two percent of its salaries or related expenses were for en^loyees who spent 

time on FEA or activities in connection with a federal election. However, we recommend that the Audit Division 

clarify this point. 
Memorandum to John D. Gibson and Joseph F. Stoltz 

Proposed Interim Audit Report 

Georgia Federal Elections Committee (LRA 793) 

Page 3 of5 

the Committee has not provided the monthly logs required by 11 C.F.R. § 106.7(d)(1) or any 

other documentation supporting this assertion. In the absence of this documentation, tiie 

proposed IAR concludes that all of the activity in the payroll account must be treated as 100 

percent federd activity, as much as 98 percent of which was impermissibly pdd with non-federal 

funds. 

In two recent audits of state party committees, the Commission has permitted committees 

to use affidavits as supporting documentation, despite the fact that they had not mdntdned the 

monthly logs required under 11 C.F.R. § 106.7(d)(1). See Tennessee Republican Party IAR; 

Missouri State Democratic Committee Find Audit Report ("FAR"). To be consistent with these 

two audits, we recommend that the Audit Division expand its recommendation to provide more 

guidance to the Committee regarding what altemate documentation the Commission may accept. 

in. nNDING 1 - MISSTATEMENT OF FINANCIAL ACTIVITY 

Assuming that the Committee establishes that at least some of the funds in the payroll 

account were for non-federal salaries or related expenses. Finding 1 addresses the Committee's 

fdlure to report that activity. The Committee states it did not report the payroll account's nonfederal activity to the Commission because it did not believe tiie payroll account was either a 

federd account or an allocation account. The proposed IAR concludes that the payroll account 

functioned as an allocation account, from which all activity, including non-federd activity, was 

reportable to the Commission. "TO assist the Commission in resolving this issue, we address 

I its options for how to treat 

this Committee. 
Memorandum to John D. Gibson and Joseph F. Stoltz 

Proposed Interim Audit Report 

Georgia Federal Elections Committee (LRA 793) 

Page 4 of5 

Ithe Committee has asserted, but has not yet established, that the 

funds in the payroll account were for non-federal sdaries or related expenses. 

le Committee is a state politicd party that is subject to the stricter 

FEA salary dlocation requirements. &e2 U.S.C. § 441i(b); 11 C.F.R. § 106.7(d)(1). Iftiie 

Committee is unable to establish tiiat salaries pdd from its payroll account were for staff who 

worked on non-federal programs, those salaries should be treated as non-dlocable FEA pa3^ble 

with 100 percent federal funds. See 11 C.F.R. § 106.7(d)(1). If all the Conunittee's sdaries and 

related expenses are treated as non-allocable FEA, then the issue of how to treat a conunittee 

whose payroll vendor will not draw payroll from multiple federal and non-federal operating 

accounts is moot. In that case, the IAR should simply conclude that the Committee should have 

made the disbursements from its federal account using only federal funds, and should have 

reported them as federd disbursements on Schedule B. 

I even assuming tiie Committee is able to establish tiiat at least some ofthe funds 

in the payroll"account were non-federal, the Committee did not report any oftiie payroll 

account's non-federal activity to the Conunission. 

Ithe question becomes whether, as the Conunittee cldms, the Committee 

could treat its payroll account as a kind of "escrow account" that is neither federal nor nonfederd, and from which the Committee would only be required to report its federal and diocable 

activity, but not its non-federd activity. 

We concur witii the Audit Division tiiat tiie Conimittee should be required to report its 

non-federal activity from its payroll account. Because (again assuming the Committee can 

document its assertions) the Committee used the payroll account to make both federal and nonfederal disbursements using funds from both its federd and non-federd operating accounts, the 

payroll account served as the functional equivalent ofan dlocation account. Allocation accounts 

are federal accounts from which conimittees must report all activity, including their non-federal 

activity. See 11 C.RR. §§ 104.17,106.7(f). Accordingly, we are of tiie view that the payroll 

account here is a federal account, and the Committee is required to report its non-federal activity. 

See id. 

Provided the Committee is required to report its non-federal activity, we dso concur with 

tiie Audit Division that the Committee should be permitted to establish a separate account from 

which it may make its federal and non-federd payroll disbursements. 
Memorandum to John D. Gibson and Joseph F. Stoltz 

Proposed Interim Audit Report 

Georgia Federal Elections Committee (LRA 793) 

Page 5 of5 

^^^^^^^^^^^^^^Ithe Committee could not use 

its federal accoimt to make its payroll disbiSs^ient^ecausei^as prohibited from transferring 

funds from its non-federal account to reimburse the federd account for non-dlocable non-federal 

activity, but it could not use the non-federal account to make its payroll disbursements because it 

was prohibited from dlocating federd disbursements and from transferring funds 

to reimburse those disbursements. .Sgg 11 C.F.R. §§ 102.5(a), 106.7(f)(1). 

|the Committee attempted to comply with the law by creating a 

separate "escrow account" from which it could make 100 percent non-federal disbursements. 

Therefore, the Commission could reasonably determine that the Committee's use of the payroll 

account was permissible, provided that it amend its reports to disclose the non-federal activity 

that was not reported. 

While we are of the view that the Comniittee should be permitted to establish a separate 

payroll account in light of the restriction it faced, this issue may come up agdn given that 

Paychex is a commonly used payroll vendor. On their face, the Conunission's regulations 

prohibit conimittees from transferring funds from a non-federal account to reimburse a federal 

account for non-dlocable activity, and pennit committees to use allocation accounts "solely for 

the purpose of paying the diocable expenses of joint federal and non-federal activities.*' See 11 

C.F.R. § 106.7(f)(1). Therefore, looking forward, we note that the only way committees could 

ensure tiiat they were in compliance with the law would be to ensure that they choose a payroll 

vendor that will draw their payroll from tiieir federal and non-federd operating accounts in 

compliance with the regulations.