SANDLER, REIFF, YOUNG & LAMB, RC. 

January 11,2012 

Mr. Thomas Hintermeister 

Assistant Staff Director 

Audit Di vision 

Federal Election Commission 

999 E Street, N.W. 

Washington, D.C. 20463 

Dear Mr. Hintermeister: 

This letter will serve as the response ofthe Minnesota Democratic-Farmer-Labor Party 

("MDFL") to the Interim Audit Report ("Audit Report") of the Federal Election Commission's 

Audit Division ("the Audit Division") for the period covering the MDFL's financial activities for 

2007 and 2008. 

The response to each of the Audit Division's two findings is as follows: 

Finding #1 

The Interim Audit Report's ("IAR") first finding involves the correction of the disclosure of 

financial activities for the committee's reports for calendar years 2007 and 2008. The finding 

stems from two types of issues. First, the Audit Report requests correction of certain items and 

cash on hand amounts due to errors made in committee reports during the 2008 election cycle. The 

committee has filed amendments to correct these errors. 

The other portion ofthe Audit Reports finding involves the Audit Division's view that the 

MDFL's use of an escrow account to transmit payroll from both its federal and non-federal 

accounts should be fully disclosed on the committee's federal reports. This is not an issue of first 

impression for the Commission. The Commission recently addressed this issue in the audit ofthe 

Georgia Federal Elections Committee ("GDP") for the 2006 election cycle. In that audit, the GDP 

had created an escrow account for the purposes of facilitating a single payment to a payroll 

company for both federal and non-federal accounts. In this audit, the Audit Division took the 

position that this payroll transmittal account was a federal account and that all activity, both federal 

and non-federal must be disclosed by the committee. The Commissipn disagreed with the Audit 

Division and determined that the non-federal portion of the activity was not required to be reported 

by the GDP on its federal reports. 

1025 VERMONT AVENUE, N.W.. SUITE 300 • WASHINGTON, DC 20005 • TEL: (202) 479-1111 • FAX: (202) 479-1115 
As in the case of the GDP, the MDFL established a payroll account to facilitate the payment 

of payroll expenses. It is believed that this account was established sometime during the 1970's 

and has been used ever since to facilitate payroll payments which have been handled in-house by 

the MDFL. The account was intended to act solely as a pass through account and was not intended 

to pay any expenses other than the payroll expenses for which other MDFL accounts would remit 

sufficient funds to pay those expenses. 

It should be noted that this account had been established well before the Commission's 

implementation ofits allocation regulations in 1991 (former 11 C.F.R. § 106.5) and the passage of 

the Bipartisan Campaign Reform Act of 2002. Each of these events changed the way that party 

committees paid for federal and non-federal expenses. Despite these changes, the MDFL (much 

like the GDP) believed in good faith, that the 100% non-federal payroll expenses need not be 

disclosed on federal reports. During the 2008 election cycle, the MDFL maintained two types of 

employees. First, it had employees that were paid 100% federal, and second, it had employees that 

were paid 100% non-federal.' Other than payroll expenses, the only other expenses paid for by the 

payroll account were certain retirement benefits that were deducted from employee payrolls. All 

other benefits were paid from non-payroll accounts pf the MDFL. 

Based upon the Commission's conclusion in the GDP's Audit ofits 2006 activity, the 

MDFL does not believe that is required, under these circumstances, to report the transmittal of the 

non-federal amounts paid to its payroll account. Similar to the GDP, the MDFL does not intend,, 

nor does it believe, that this transmittal account is a federal account of the committee. To require 

disclosure of these amounts would result in an artificial increase in the disclosure of its federal 

activity, which it. believes would be burdensome for the coinmittee and confusing to the readers of 

the MDFL's reports. To be sure, these funds are derived solely from non-federal accounts, 

represent exclusively non-federal activity and were never commingled with other federal accounts 

of the MDFL. Thus, the MDFL's circumstances were materially identical to the GDP in its audit 

and the Commission should conclude, similar to the GDP Audit Report, that the payroll account 

was not a federal account.^ 

For the reasons stated above, the MDFL will not be amending its reports to include the nonfederal payroll account activity at this time."' It should be noted that the amendments that have been 

filed, including all financial activity and cash on hand fully comply with all other reconmiendations 

in Finding #1. 

' Unlike the GDP, the MDFL did not allocate any payroll disbursements to employees between federal and non-federal 

funds during the 2008 election cycle. The 100% non-federal employees include those MDFL employees who spent 0% 

of their time in a given month on federal elections or federal election activities, as well as employees ofthe two 

legislative caucus committees for the Minnesota legislature. For the two caucus committees, the MDFL is reimbursed 

by these committees for payroll expenses and the reimbursement are deposited into the MDFL's non-federal accounts. 

^ It should be noted that, in 2011, the MDFL has established a separate payroll account to exclusively pay for the nonfederal employees. 

^ The MDFL inadvertently made a transfer from its non-federal account, that was intended for the payroll account, to its 

federal account. The federal account Immediately transferred these funds to its payroll account. The receipt and 

transfer out are disclosed in the amendments on Lines 17 and 29 respectively. 
In addition, the Interim Audit Report references a potential in-kind contribution from South 

Clinton Street Investments, LLC in the amount of $10,000.00 in connection with an invoice for the 

Four Points Sheraton in Denver, CO in September 2008. According to representatives of the LLC, 

the LLC was, at that time, a holding company that had an ownership interest in the hotel. A 

representative of the LLC has indicated to the MDFL that this payment was the correction of a 

mistaken mis-deposit of funds into the LLC that should have been applied to the MDFL's Folio and 

was not an in-kind contribution to the MDFL. A copy of the communication with the LLC has 

been provided to the Audit Division. 

Finding #2 

The IAR report's second finding involves the overfunding of the MDFL's federal account 

by its non-federal accounts. The IAR concludes that the MDFL's non-federal account overfunded 

the federal account by $277,103. Based upon our review, no overfunding occurred. The actual 

amount of underfimding is $145,609. Our adjustment to the lAR's finding is as follows: 

1) Underfunding of non-federal portion of shared activitv 

The IAR states that that MDFL underfunded allocable expenses by $13,748 for the 2008 

cycle. The LAR's analysis of this first factor is based solely upon a review of un-amended reports 

filed by the MDFL. Using the lAR's methodology, after the filing of amendments, the actual 

amount of under-funding per the MDFL's reports is actually $136,645. 

2) Overfunding of non-federal payroll 

The IAR states that the MDFL overfimded non-federal payroll by $86,363. Based upon our 

own intemal analysis, we believe this amount to be $ 66,363. The Audit Division has been 

provided with our internal spreadsheets that justify this amount. 

3) Unsupported transfers from non-federal accounts 

For purposes of our analysis, the MDFL has rolled this separate analysis into our findings in 

section 1 above since most of these unsupported transfers relate to un-reported transfers from 

MDFL non-federal accounts to regular federal accounts to pay for the non-federal share of benefits 

payments. These payments are now disclosed as allocable expenditures on Schedule H4 in 

amended reports. It should be noted that, to the extent that any transfer lacks documentation, it 

cannot be disallowed solely on that basis since FEC regulations do not require that allocation 

transfers be documented, but rather, that such transfers are made within a 70 day window ofany 

allocable expense. 11 C.F.R. § 106.7(f)(2). Consistent with the Commission's methodology used 

in the IAR, any over-transfer of non-federal funds during the 2008 cycle would be subsumed within 

the amount in the analysis in section 1 above. 
4) Reported federal activitv paid from non-federal accounts 

The IAR states that the MDFL may have paid for $51,105 in federal activity from its nonfederal accounts. The MDFL has provided documentation that demonstrates that $31,529 of this 

amount was properly paid for from the non-federal account. The MDFL concedes that $19,576 of 

this amount should have been paid for from federal fiinds. Of that, $2,791 is 100% federal activity, 

and the remaining $16,785 is allocable activity (36% federal, 64% non-federal). Therefore the total 

amount that should have been paid from Federal funds is $8,833. The MDFL has provided the 

Audit Division with spreadsheets that justify the MDFL's conclusion. 

5) Other Issues 

The MDFL has identified two other categories of federal activity that should serve to reduce 

the overfunding finding. First, the MDFL had made transfers, for cash flow purposes, from its 

federal accounts to its non-federal accounts during the 2008 cycle. Since these transfers served to 

reduce the amount of federal funds available to the MDFL, it should be included in the analysis for 

this fmding. Second, the MDFL has identified $13,737 in 100% non-federal expenses within the 

various categories for disbursements cited in Finding 1 that were paid from the MDFL's federal 

accounts. The MDFL has provided the Audit Division with spreadsheets that justify the MDFL's 

conclusion. These expenses could have been permissibly been paid for from the non-federal 

accounts and, therefore, should also reduce the amount of the overfunding finding. 

The MDFL has also identified two deposits from the 5'** Congressional District DFL that 

should have been deposited into its non-federal account. These two deposits, totaling $18,027, 

were included in the Commission's analysis regarding unreported receipts but not included in the 

over-transfer analysis. Notwithstanding, we have included these mis-deposits below. 

Based upon the above, the MDFL believes that it under-funded non-federal activity as follows: 

Under-funding of non-federal portion of shared activity ($ 136,645) 

Over-funding of non-federal payroll 66^363 

Unsupported transfers from non-federal accounts 0 

Reported federal activity paid from non-federal accounts 8,833 

Transfers from Federal account to non-federal account (88,450) 

Non-Federal activity paid for from Federal account. (13,737) 

Mis-deposit of 5^ Congressional District DFL 18.027 

Total under-fiinding by the non-federal account ($ 145,609) 
If you require any further information, or have any other questions, please call me at (202) 

479-1111. 

Sincerely, 

Neil Reiff 

Counsel to the Minnesota Democratic-FarmerLabor Party