FEDERAL ELECTION COMMISSION 

W/SSHINCTON, 0.C 20463 

May 6.2013 

MEMORANDUM 

TO: Patricia C. Onock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway t/il'W». I' 

Assistant General Counsel ^ ^ 

For Compliance Advice 

Margaret J. Forman -wi A 

Attorney 

SUBJECT: Proposed Interim Audit Report on Nebraska Democratic Party (LRA 888) 

I. INTRODUCTION 

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

C'lAR") for the Nebraska Democratic Party C'the Committee")- The JAR contains three findings: 

Recordkeeping for Employees (Finding 1), Reporting of Debts and Obligations (Finding 2), and 

Excessive Coordinated Party Expendinires (Finding 3).' Our comments address Recordkeeping 

for Employees (Finding 1) and Excessive Coordinated Party Expenditures (Finding 3). If you 

have any questions, please contact Margaret J. Forman, the attorney assigned to this audit. 

' We recommend that the Commission consider this document in Executive Session because the Commission 

may eventually decide to pursue an investigation of matters contained in the proposed FAR. 11 C.F.R. §§ 2.4(a) and 

(b)(6). 
Comments to the Interim Audit Report 

Nebraska Democratic Party (LRA 888) 

Page 2 

II. RECORDKEEPING FOR EMPLOYEES (Finding 1) 

The proposed lAR finds that the Committee did not maintain monthly payroll logs for the 

percentage of time each employee spent on federal election activity in accordance with 

11 C.F.R. § 106.7(d)(1). The auditors found that the amount of federal and non-federal funds paid 

for employees, including contract workers, for which logs were not maintained totaled 5300,708. 

Of this amount, the Committee paid a total of S17,928 to its contract workers. In the absence of 

providing monthly payroll logs, the proposed lAR recommends that the Committee implement a 

plan to maintain monthly payroll logs to track the percentage of time each employee spends on 

federal election activity for payroll not reported and paid with 100% federal fUnds. 

In two currently pending audits, the Commission considered whether the payroll 

recordkeeping requirement under 11 C.F.R. § 106.7(d)(1) should be applied to individuals who 

perform work for committees as "contract" workers. In those audits, the Commission did not 

approve, by the required four votes, the Audit Division's recommendations to include contract 

workers within the scope of the section 106.7(d)(1) monthly payroll log requirement, and the 

recordkeeping findings as to the contract workers were removed from the reports (two 

Commissioners voted for the original recommendations). The Commission's guidance had 

previously been sought on this issue pursuant to Commission Directive 69, and the 

recommendation of the Audit Division and the Ofhce of General Counsel to include contract 

workers within the scope of the recordkeeping requirement failed to receive the affirmative vote of 

four or more Commissioners. Pursuant to Directive 69, the Office of Compliance proceeded, in 

the two pending audits previously referenced, to Include the payroll for contract workers within the 

recordkeeping finding in the Interim Audit Report as submitted to the Commission. We 

understand that the Office of Compliance also is proceeding in this audit to include the payroll for 

contract workers within the recordkeeping finding. 

Pursuant to Directive 69, the Audit Division may continue to include in the proposed lAR 

consideration of contract workers in determining whether and/or the extent to which the 

Committee complied with the monthly payroll log requirement under 11 C.F.R. § 106.7(d)(1). We 

recommend that the Audit Division make a note of its inclusion, and the Commission's prior 

decisions in the two pending audits, in its cover memo transmitting the proposed lAR.^ 

III. EXCESSIVE COORDINATED EXPENDITURES (Finding 3) 

The proposed lAR finds that the Committee made an apparent excessive in-kind 

contribution of 534,789 to a House candidate, resulting from coordinated expenditures made in 

excess of the coordinated party spending limitation. When a political committee receives an 

excessive contribution from another political committee, it should refund the excessive 

contribution. 11 C.F.R. § 103.3(b). Additionally, nothing in the Federal Election Campaign Act 

or the Commission's regulations prohibits the committee making the contribution, here the 
Comments to the Interim Audit Report 

Nebraska Democratic Party (LRA 888) 

Page 3 

Nebraska Democratic Party, from seeking a refund of the excessive contribution. However, a 

contribution refund is not feasible here as the committee of the House candidate that received the 

apparent excessive contribution was terminated. The Commission approved the candidate's 

request for termination of his principal campaign committee on May 10,2011.^ Therefore, we 

believe that the proposed recommendation appropriately excludes such a remedy.^ 

Additionally, the Audit Division has informed the Office of General Counsel that the 

Committee made approximately $100,000 in additional expenditures that the Committee claimed 

to be exempt under the volunteer materials exemption. See 2 U.S.C. §§ 43 l(8)(B)(ix) and 

(9)(B)(vUi); 11 C.F.R. §§ 100.87 and 100.147. The proposed lAR does not discuss these 

expenditures because the Audit Division concluded foat the expenditures qualified for the 

exemption. We recommend that the Audit Division include in the proposed lAR and the cover 

memorandum to the Commission a discussion of these expenditures. Because of the uncertainty 

regarding the level of volunteer involvement needed to qualify State or local party disbursements 

for the exemption as it applies to mailings, however, we believe that the Audit Division should 

decline to reach a conclusion on the issue, consistent with another pending audit, as well as with 

the Commission's approach in two other recent audits.^ 

The Commission addressed the applicability of the volunteer materials exemption in the 

Final Audit Reports in the Democratic Executive Committee of Florida (DECF) and the Tennessee 

Republican Party Federal Election Account. In the DECF FAR, the Commission concluded that 

there existed a "lack of clarity in recent audits regarding the amount of volunteer involvement 

needed to qualify for the volunteer materials exemption," and the Audit staff did not count the 

expenses toward the coordinated party expenditures. See Final Audit Report of the Commission 

on the DECF (2012), at 3,6-10. In that matter, the DECF had provided a cell phone picture that 

had been taken by an individual who had averred by e-mail that he was present at the mailings of 

the mail pieces. See OGC Comments on DFAR on the DECF at 3. Similarly, in the earlior 

Tennessee Republican Party FAR, the Commission noted the "lack of clarity" regarding 

application of the exemption and did not approve a finding that certain mail pieces did not qualify 

for the volunteer material exemption. See Final Audit Report of the Commission on the Tennessee 

Republican Party Federal Election Account (2011), at 3,12-15. Our recommended approach here 

is consistent with the Commission's conclusions in both of these FARs. 

* Footnote 9 of the proposed lAR states that the candidate's committee was approved for admiiiistrative 

termination on May 10,2011; however, the disclosure reports and related correspondence indicate that the candidate 

sought termination by the Commission pursuant to 11 C.F.R. § 102.3, rather than being administratively terminated 

pursuant to 11 C.F.R. § 102.4. We recommend that the proposed lAR be modifled to reflect this information. 

* There is no procedure for the Reports Analysis Division to reactivate the candidate committee for the purpose 

of providing a refund to this Committee. Additionally, because the candidate committee already disbursed its funds 

prior to termination, it would have no funds to refund. 

' The Audit Division has informed us that the Committee also made approximately SS,600 in expenditures on 

exempt yard signs. We understand that these expenditures are exempt activity and are not the subject of the 

uncertainty with regard to volunteer mailings. See 2 U.S.C. §§ 43I(8)(B)(ix) and (9)(B)(viii); 11 C.F.R. §§ 100.87 

and 100.147. 
Comments to the Interim Audit Report 

Nebraska Democratic Party (LRA 888) 

Page 4 

As noted in our comments on the DFARs in these prior audits, the Commission has failed 

to reach consensus in past enforcement mattos regarding the application of the volunteer matoials 

exemption under similar facts. See OGC Comments on Final Audit Report on Tennessee 

Republican Party Federal Election Account (LRA 745); OGC Comments on DFAR on the DECF 

(LRA 805); see also OGC Comments on Final Audit Report on the Washington State Democratic 

Central Committee (LRA 737). In particular, we noted MUR 5598, Utah Republican Party, et a/., 

in which four Commissioners issued a Statement of Reasons declining to draw a conclusion 

regarding whether the URP met the exemption in that case because of the "complicated history" of 

the exemption's application, and therefore dismissing the complaint as an exercise of prosecutorial 

discretion. See OGC Comments on Final Audit Report on the Tennessee Rqrublican Party Federal 

Election Account (LRA 745); OGC Comments on Final Audit Rqroit on the Washington State 

Democratic Central Committee (LRA 737) (discussing Statement of Reasons of Commissioners 

Petersen, Bauerly, Hunter, and Weintraub in MUR 5598, Utah Rqrublican Party, et al. (April 9, 

2009)). 

Recognizing the lack of clarity as to the volunteer materials exemption, the Commission 

has attempted, without success so far, to formulate a consensus policy regarding what constitutes 

"substantial volunteer involvement" for the purpose of applying the exemption. In particular, the 

Commission issued four draft documents for public comment in March 2010. See Proposed 

Interim Enforcement Policy, Agenda Document No. 10-16, Drafts A through D. While there 

appears to be broad agreement among the draft documents about some types of activities that 

would qualify a State or local committee for the volunteer materials exemption, there is 

disagreement among the drafts about whether any one of the potentially qualifying activities 

would, by itself, suffice to qualify the committee for the exemption, or whether only a number of 

activities taken together mi^t suffice. Compare, e.g. Propos^ Interim Enforcement Policy, 

supra. Draft A (Chairman Matthew S. Petersen, Commissioner Caroline C. Hunter, and 

Commissioner Donald F. McGahn II) at 5, Draft B (Commissioner Steven T. Walther) at 5, Draft 

C (Vice Chair Cynthia L. Bauerly, and Commissioner Ellen L. Weintraub) at 5, and Draft D 

(Commissioner Donald F. McGahn II) at 4. 

In this matter, the Committee apparently submitted photographs documenting volunteers 

participating in activities relating to the mailings, as well as statements from the deputy director of 

the Nebraska Democratic Party and a vendor. Nevertheless, based on our conclusion regarding the 

Commission's lack of consensus on the level of volunteer involvement needed to qualify a party 

committee for the volunteer materials exemption, as well as the amount of documentation requii^ 

to support such an exemption, we recommend that the Audit Division raise this issue in the cover 

memorandum to the Commission and indicate in its audit report that because of this lack of clarity, 

it is not attributing the Committee's spending on these mailings to the Committee's coordinated 

expenditure limit.