SANDLER, REIFF & YOUNG, RC. 

January 14, 2010 

Mr. Joseph F. Stoltz 

Assistant StafTDirector 

Audit Division 

Federal Election Commission 

999 E Street, N.W. 

Washington, D.C. 20463 

DearMr. Stoltz: 

This letter, and attached exhibits will serve as the response ofthe Georgia Federal Elections 

Committee ("GFEC*') to tiie Interim Audit Report ("Audit Report") oftiie Federd Election 

Commission*s Audit Division ("the Audit Division") for the period covering the GFEC*s financial 

activities for 2005 and 2006. 

The response to each of the Audit Division*s three findings is as follows: 

Finding #1 

The Commission*s first finding involves the correction of the disclosure of financid 

activities for the committee's reports for cdendar years 2005 and 2006. The finding stems from 

two types of issues. First, the Audit Report requests correction of a small number of items and cash 

on hand amounts due to errors made in comniittee reports during the 2006 election cycle. The 

committee has filed amendments to correct these enors. 

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

GF£C*s use of an escrow account to transmit payroll from both its federd and non-federd accounts 

should be fully disclosed on the committee's federd reports. For the reasons stated below, the 

GFEC does not beUeve that the escrow account is a federal account and does not intend, at this 

time, to amend its reports to reflect the non-federd portion of the escrow account's activities on its 

federd report. 

With the enactment ofthe Bipartisan Campdgn Reform Act of 2002, the process of paying 

payroll expenses by state party committees was significantly dtered. Many state parties stmggled 

to work with their payroll companies to accommodate the needs ofthe payroll company and the 

new requirements placed upon the committees by new FEC regulations. In 2002, the FEC 

promdgated regulations that required committees to dther pay employees entirely with federd 

fimds, or entirely with non-federal funds. This determination was based upon new 2 U.S.C. § 

431(20)(A)(iv) which requires that any employee who spend in excess of 25% of any given month 

300 M STREET, S.E., SUITE 1102 • WASHINGTON, DC 20003 • TEL: (202) 479-1111 • FAX: (202) 479-1115 
on activities in coimection with a federal election be paid exclusively with federd funds. In 

promulgating regulations to comply with this provision, the Commission provided that those 

employees who did not meet this 25% threshold should be pdd exclusively with non-federd funds. 

Former 11 C.F.R. § 300.33(c)(2) (The committee modified these requirements to provide for 

dlocation of most such employees in late 2005). 

Many state parties encountered difticultly in creating systems to comply with this new 

requirement. The requirement created two distinct challenges for the GFEC. First, the committee 

would be required to estimate each employee*s activities in the given month so that their payroll 

would be drawn fh)m the appropriate fimds for payroll. Second, the GFEC encountered problems 

with tiieir existing payroll company, Paychex, with respect to the arrangement of debiting two 

different bank accoimts for payroll. It was not feasible for GFEC to create two distinct companies 

for payroll since it expected employees to bounce back and forth between the 25% threshold. 

Furthermore, the GFEC did not believe it feasible, nor did it desire, to switch payroll companies in 

order to search for one who could accommodate the debiting of two separate accounts. 

In order to solve these dilenmias, the GFEC established a pass through escrow account for 

the sole puipose of transmitting federd and non-federal funds to Paychex fi^m one account per 

Paycheck's requirements. The account was intended to be a zero bdance account for which the 

only cash that would remdn in the account would be un-cashed payroll expenses. Under this 

arrangement, the federal account reported dl funds transmitted into the escrow account as 

payments directly to the employees and appropriate tax authorities in the same way that other 

committees that use payroll companies report such activities. 

The GFEC did not, and does not believe that is required, under these circumstances, to 

report the transnuttd ofthe non-federd amoimts pdd to Paychex through this transmittd account. 

In short, the GFEC did not intend, nor does it believe, that this transmittd account is a federd 

account ofthe committee. To require disclosure of these amounts would result in an artificid 

increase in the disclosure of its federd activity, which it believes would be burdensome for the 

committee and confusing to the readers of the GFEC's reports. To be sure, these funds are derived 

solely from non-federal accounts, represent exclusively non-federd activity and were never 

commingled with otiier federd accounts of the GFEC. 

Furthermore, it should be noted that this account was not intended to be an dlocation 

account in accordance with 11 CF.R. § 106.7(f)(l)(ii). Of course, until the Commission's changes 

to section 300.33 in 2005, none of the expenses tiiat passed through the account were allocable in 

nature. 

Based upon the above, the GFEC believes that the payroll escrow account was not a federd 

account but ratiier a transmittal account for both federd and non-federd funds that were established 

for the sole purpose of transmitting funds to Paychex from one source account per the company's 

requirements. Therefore, the GFEC believes that the disclosure of the non-federal portion of fimds 

transmitted through the account, including the activity and cash-on-hand of the account is incorrect 

and unnecessary. The GFEC will only amend the reports, if necessary, based upon the 

Commission's conclusions in the find audit report. 
It should be noted that the amendments that have been filed, including all financid activity 

and cash on hand fully comply with dl other recommendations in Finding #1. 

Finding #2 

In this finding, the Audit Division has requested documentation regarding six employees 

with respect to whether less than 25% or no time had been spent on activities in connection with a 

federal election or federal election activities. 

Attached, please find swom declarations by those six employees that attest, as appropriate, 

that those employees spent eitiier less than or no time on those activities, as appropriate, in tiie 

relevant months in which dl or a portion of thefr payroll was pdd with non-federal fimds. 

It should be noted, as it is pointed out in the Audit Report, that the Commission's 

regulations regarding payment of payroll for those employees did not meet the 25% threshold 

changed in January 2006. The committee correctiy amended its payroll procedures to comply with 

tiiese new requirements. 

Finding #3 

With respect to Finding #3, the GFEC has been unable to locate any documentation as to 

whether it had exercised best efforts at the time that the contributions were received. 

In response to the Audit Report, the GFEC has contacted those individuds for whom it did 

not have occupation and employer and has filed amended reports for those donors that it has 

obtained this information with respect to 2005 and 2006. For those donors for whom the 

conimittee has been unable to obtdn this information, the comniittee has attached documentation to 

demonstrate that it has made attempts to contact those donors to obtdn this infonnation. 

The GFEC has now obtdned most of the requested information and believes that it is now 

in materid compliance with the requirements outlined in this Finding. i 

i 

It should be further noted that the GFEC has undertaken procedurd changes to its 

operations to ensure ongoing compliance with the Commission's Best Efforts regulations. 

If you require any further infonnation, or have any other questions, please call me at (202) 

479-1111. 

Sincerely, 

Ndl RdfT 

Counsel to the Georgia Federal Elections 

Committee