SANDLER, REIFF & YOUNG, RC. 

April 8,2010 

Mr. Terry O'Brien 

Audit Division 

Federal Election Commission 

999 E Street, N.W. 

Washington, D.C. 20463 

Dear Mr. O'Brien: 

This letter will serve as the response of the Georgia Federal Elections Committee ("GFEC") to 

the Draft Final Audit Report ("Audit Report") ofthe Federd Election Commission's Audit 

Division ("the Audit Division") for the period covering the GDP's financid activities for 2005 and 

2006. 

In accordance with Commission procedures, the conimittee would like to request an oral 

hearing to discuss an issue rdsed in the draft report. Specificdly, the GFEC would like to address 

the Drafi opinion's conclusion in Finding 1 that the non-federd activity that passed through a 

payroll escrow account must be disclosed on the conimittee's federd report 

By way of background, subsequent to the passage ofthe Bipartisan Campdgn Reform Act 

and the passage of Commission regulations regarding the payment of payroll expenses, the GFEC, 

like many other party committees were required to comply with new and onerous requirements 

regarding payroll expenses. One of many new requirements required state committees to pay 

payroll expenses either 100% directly from a federal account or 100% directly from a non-federal 

account depending on the federd campdgn activity of each employee. At the time of passage of 

the BCRA, the GFEC approached its payroll company, Paychex, to determine the best way to 

comply with the new Coinmission regulations. During this process, the GFEC was informed by 

Paychex that they could not debit multiple bank accounts in coimection with collecting payroll 

from the GFEC. Similar to all other professional payroll companies, Paychex automatically 

deducts payroll from its client's bank accounts and does not accept checks from its clients to 

process payroll. Since the new BCRA regulations required the GFEC to make payroll payments 

from both its federd and non-federd accounts, it was required to establish a separate escrow 

account in which it combined its federal and non-federal payments to Paychex. 

' During the 2005-2006 election cycle, the Commission amended its regulations to add a third category of en4)loyees 

who were allocable between federal and non-federal accounts in accordance with 11 C.F.R. § 106.7. 

300 M STREET, S.E., SUITE 1102 • WASHINGTON, DC 20003 • TEL: (202) 479-1 111- FAX: (202) 479-1115 
During the exit conference and Interim Audit Report, the Audit Division informed the 

GFEC, amongst other issues, that it beUeved that the escrow accoimt was, in fact, a federal account 

and required fiill disclosure of its activities. Although the GFEC did not object to, and complied 

with all other aspects of the Interim Audit Report, it objected to, and continues to object to this 

conclusion. Our response to the Interim Audit Report is attached to this response and clearly sets 

forth our position on this issue. 

The GFEC strongly disagrees with both the Audit Division and General Counsel's Office 

memorandum that concludes that this account served as the "fimctiond equivdent" of an allocation 

account. To be sure, an allocation account is an account estabUshed pursuant to FEC regulation to 

combine the federd and non-federd share of diocable expenses to be disbursed by party 

committees in coimection with expenses that are split between federal and non-federd fimds 

pursuant to the formulas set forth in 11 C.F.R. § 106.7. Although it has been our experience that 

few committees choose this option, the dlocation accoimt permits a committee to pass through the 

non-federal share of diocable expenses tiirough this federd accoimt instead of a mere 

reimbursement of a federal account for the non-federd share of diocable expenses. During the 

enactment of the allocation regulations in 1990, the Commission determined that the entire share of 

an diocable expense must be disclosed, including the non-federd share of each expense. Of 

course, these expenses include a federal and non-federal component for each expense. 

Unlike the allocation process, the GFEC's payroll account merely remitted payroll expenses 

that were either federd, allocable or purelv non-federal directly to one vendor, its payroll company. 

The first two categories of expenses that passed through the payroll transmittal account were fiilly 

disclosed and the diocable share of payroll was transmitted and reported in accordance vidth federal 

. regulations regarding allocable expenses. The GFEC does not agree with OGC's conclusions that 

the FEC has an interest in tracking and disclosing these 100% non-federd transactions. The OGC 

memorandum even acknowledges that it would not be permissible for the GFEC to transfer a 100% 

non-federd expense to a federal or allocation account. Of course, nothing in the Commission's 

Audit suggests that the GFEC abused or otherwise mishandled the remittal of non-federal fimds 

during the payroll process through this escrow account. 

It should be noted that, due to the time, expense and uncertdnty created by disputing this 

issue, the GFEC has chosen to change payroll companies to one that can accommodate the 

transmittal of payroll separately from federd and non-federal accounts. This decision was not 

made lightly based upon the long and tmsted relationship between GFEC and Paychex for severd 

years. Nevertiieless, the GFEC believes that it properly handled disclosure of the remittd of 

payroll expenses and that the Commission should not require the GFEC to amend its reports to 

include the payment of 100% non-federd payroll expenses on its federal report. 
If you reqmre any furtiier information, or have any other questions, please call me at (202) 479-1111. ^ ^ \ J 

Sinc^ely, 

Neil Reiff 

Counsel to the Georgia Federal Elections 

Committee