FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

December 20,2013 

MEMORANDUM 

TO; Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway 

Assistant General Counsel 

For Compliance Advice 

133. 

LA 

Danita C. Alberico h/L ^ w 

Attomey ' ' (T 

SUBJECT: Draft Final Audit Report on the Nebraska Democratic Party (LRA 888) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Draft Final Audit Report C'DFAR") 

for the Nebraska Democratic Party ("Committee"). The DFAR contains three findings: 

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

Excessive Coordinated Party Expenditures (Finding 3). Our comments address Reporting of 

Debts and Obligations (Finding 2) and Excessive Coordinated Party Expenditures finding 3). If 

you have any questions, please contact Danita C. Alberico, the attomey assigned to this audit. 

II. REPORTING OF DEBTS AND OBLIGATIONS (Finding 2) 

The DFAR finds that the Committee failed to correctly disclose debts and obligations 

totaling $120,447. The DFAR states that the Committee filed amended reports in response to the 

Interim Audit Report ("lAR") recommendations to materially disclose the debts and obligations. 

Our comments address two aspects of the finding. First, we address whether the Committee 
Conunents to the Draft Final Audit Report 

Nebraska Democratic Party (LRA 888) 

Page 2 

should have disclosed its rent payments as debts. We also address whether two other 

transactions should be reported as debts. 

The DFAR finds that the Committee did not disclose as debts rent payments for office 

space totaling $4,500 that were made more than 30 days after the rent due dates. Although the 

Conunittee amended its reports to disclose the late rent payments as debts, the Committee 

contended in its exit conference response that the rent payments were not reportable debt because 

the rent was a reoccurring obligation. 

The Commission's regulations require that "[a] debt or obligation, including a loan, 

written contract, written promise or written agreement to make an expenditure, the amount of 

which is over $500 shall be reported as of the date on which the debt or obligation is incurred, 

except that any obligation incuned for rent, salary or other regularly reoccurring administrative 

expense shall not be reported as a debt before the payment due date." 11 C.F.R. §104.11(b). 

The Commission has clearly explained the disclosure requirements for rent paid after the due 

date: "periodic administrative costs incurred for rent and staff salaries need not be reported as 

debts if payment is not due before the end of the reporting period. However, if payment is not 

made on the due date, the amount outstanding must be reported as debt." Explanation and 

Justification for Continuous Reporting of Debts and Obligations, 55 Fed. Reg. 26,378,26,385 

(June 27,1989). Here, the Committee paid its rent after the due dates. Thus, we concur with the 

DFAR that the Committee failed to properly disclose as debts rent payments totaling $4,500. 

Regarding two additional transactions, the Committee declined to amend its disclosure 

reports and offered the following explanations as to why those transactions did not constitute 

reportable debts: payments to one vendor totaling $7,344 were for non-federal activity; and a 

second debt totaling $1,000 was the result of a billing error. The Audit Division advised this 

Office that it accepts the Committee's explanations regarding the two debts. However, the 

DFAR does not explicitly state the auditors' position or provide an analysis supporting its 

decision to accept the Conunittee's explanations. Therefore, we recommend that the Audit 

Division expressly state its position in the DFAR regarding the explanations that the Committee 

offered on the two debts and set forth the basis for the Audit Division's position. 

III. EXCESSIVE COORDINATED PARTY EXPENDITURES (Finding 3) 

The DFAR finds the Committee made an apparent excessive in-kind contribution of 

$34,789 to a House candidate, resulting from coor^nated expenditures made in excess of the 

coordinated party spending limitation. 

First, the DFAR includes in the coordinated expenditure activity a payment of $578 to a 

vendor for a campaign sign in support of a House candidate that was placed in the window of the 

party's field office during the 2010 general election.' The Committee contends in its lAR 

response that the window sign was not coordinated activity and was not intended as a public 

communication. The Committee said that it placed the sign in its field office window next to 

signs of other Nebraska candidates and that diis practice is common activity for party offices. 

The DFAR states that since the Committee originally classified the window sign as a coordinated 

expenditure, it does not believe that the Committee's explanation is sufficient to overcome its 
Comments to the Draft Final Audit Report 

Nebraska Democratic Party (LRA 888) 

Page 3 

origina] reporting regarding the window sign. The auditors also explained to this Office that 

Committee's continued reporting of the expenditure on Schedule F (Itemized Coordinated 

Expenditures Made by Political Party Committees or Designated Agent(s) On Behalf of 

Candidates for Federal Office) instead of Schedule B (Itemized Disbursements) supports its 

determination to treat the window sign as a coordinated expenditure. Since the Committee 

contends that the window sign was not a coordinated expenditure, we recommend that the 

auditors analyze the issue consistent with the (Commission's regulatory provisions. We do not 

believe the Audit Division has applied the appropriate standard to determine whether the window 

sign should be applied to the Committee's coordinated expenditure limit. 

A State committee of a political party may make coordinated party expenditures in 

connection with the general election campaign of a candidate for Federal office in that State who 

is affiliated with the party. 11 C.F.R. § 109.32(b)(1). The coordinated party expenditures shall 

not exceed the coordinated party expenditure limit. 11 C.F.R. § 109.32^)(2). A payment by a 

political party committee for a communication that is coordinated with a candidate must be 

treated by the political party committee making the payment as either an in-kind contribution to 

the candidate with whom it was coordinated or a coordinated party expenditure pursuant to 

coordinated party expenditure authority under 11 C.F.R. §§ 109.37(b)(1) and (2). 

A party coordinated communication must satisfy the three-prong test set forth at 11 

C.F.R. § 109.37(a)(l)-(3). First, the expenditures must be paid for by a political party committee 

or its agent. 11 C.F.R. § 109.37(a)(1). Second, the communication must satisfy at least one of 

the following content standards: (1) a public communication that disseminates, distributes or 

republishes campaign materials; (2) a public communication that contains express advocacy; or 

(3) a public communication, as described inl 1 C.F.R. § 100.26, that satisfies 11 C.F.R. 

§ 109.37(a)(2)(iii)(A) or (B). 11 C.F.R. § 109.37(a)(2). Finally, the communication must satisfy 

a least one of the conduct standards set forth at 11 C.F.R. § 109.21(d)(1) through (d)(6). 11 

C.F.R. § 109.37(a)(3). 

The Committee paid $578 for the window sign.' Thus, the expenditure satisfies the 

payment prong for coordinated activity. 11 C.F.R. § 109.37(a)(1). However, the auditors do not 

appear to possess any information to establish that the window sign constitutes a public 

communication so as to satisfy the content prong. A public communication is defined as a 

communication by means of any broadcast, cable, or satellite communication, newspaper, 

magazine, outdoor advertising facility, mass mailing, or telephone bank to the general public, or 

any other form of general public political advertising. 2 U.S.C. § 431(22) and 11 C.F.R. 

§ 100.26. Here, the Committee merely placed the sign in its field office window and did not pay 

an intermediary for any form of access to the public. Explanation and Justification for Definition 

of Public Communication, 71 Fed. Reg. 18,593, 18,594-18,595 (Apr. 12,2006). The auditors 

also do not appear to possess any information establishing that the conduct prong has been 

' The Committee issued a check dated Juiy 9,2010 to the vendor fi)r S377.80. The invoice for the window 

sign, however, shows a balance due totaling S963; but, the invoice also contains a handwritten notation of 

"SS77.80." The auditors do not have any additional infonnation regarding the differing amounts on the invoice. 

Our review of the candidate's Juiy and October 2010 Quarterly reports do not show any payments to the window 

sign vendor. 
Comments to the Draft Final Audit Report 

Nebraska Democratic Party (LRA 888) 

Page4 

satisfied. Absent information or documentation showing that window sign satisfies the content 

and conduct prongs, we recommend that the Audit staff accept the Committee's explanation and 

find that the cost for the window sign does not constitute a coordinated expenditure.^ 

Second, the DFAR states that the Audit Division is not attributing expenditures totaling 

$4,S96 for a candidate postcard and S94,610 for the production of a mailer to the Committee's 

coordinated expenditure limit because the Committee asserts that the expenditures were subject 

to the volunteer materials exemption. See 2 U.S.C. §§ 43 l(8)(B)(ix) and (9)(B)(viii); 11 C.F.R. 

§§ 100.87 and 100.147. Regarding the postcard, the Committee provided a statement from its 

executive director attesting that volunteers distributed, hand-stamped, and placed mailing labels 

on the postcards at party headquarters to demonstrate volunteer activity. With respect to the 

mailer, the Committee provid^ vendor statements and invoices and photographs of volunteers 

participating in various duties such as reviewing, sorting, and packing the mailers to support its 

assertion for the volunteer materials exemption. The auditors did not include the expen^tures in 

calculating the Committee's coordinated expenditures because of uncertainty regarding the level 

of volunteer involvement needed to qualify State or local party disbursements for the exemption 

as it applies to mailings. 

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

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

Republican Party Federal Election Account, and the Arizona Republican Party. In the DECF 

TAR, 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 (Sep. 24,2012), at 3. Similarly, in the 

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

application of the exemption, and failed to 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 (Feb. 4,2011), at 3. 

Recently, in the audit of the Arizona Republican Party, the Commission approved a 

finding that reported expenditures should not be attributed to a committee's coordinated 

expenditure limit when there was some evidence of volunteer activity. The evidence consisted 

of a written statement and photographs documenting volunteers participating in activities related 

to mailings. On the other hand, the Commission could not reach a consensus regarding a mailing 

with only a written statement and no photographs of volunteer involvement. The discussion of 

this latter mailing containing little evidence of volunteer involvement was placed in an additional 

issues section of the audit report. See Draft Final Audit Report of the Conunission on the 

Arizona Republican Party (May 8,2013), IS.^ 

^ The Committee may need to amend its disclosure report to disclose its disbursement for the window sign as 

an independent expenditure since the sign contains express advocacy. 11 C.F.R. § 104.4(a). 

^ As of the date of this memorandum, the Commission has not yet approved the Final Audit Report of the 

Arizona Republican Party. 
Comments to the Draft Final Audit Report 

Nebraska Democratic Party (LRA 888) 

Pages 

In the matter at issue, regarding the postcard, the Committee submitted a declaration from 

its executive director asserting personal knowledge that mailing the postcard involved volunteer 

activity but the Committee did not submit any photographs of the activity. With respect to the 

mailers, the Committee submitted photographs, vendor statements, and invoices to ^ow that 

production of the mailers involved volunteer activity but it did not submit any affidavits or 

declarations from individuals with personal knowledge of the volunteer activity. The uncertainty 

regarding the amount of volunteer involvement needed to qualify for the volunteer materials 

exemption renders it difficult for committees to discern what is sufficient evidence to provide the 

Commission. Here, the Committee appears to have provided similar evidence of volunteer 

activity to that deemed sufficient by the Commission in Arizona Republican Party. 

NeverAeless, to aid the Commission in drawing a distinction between some evidence and no 

evidence of volunteer activity, we agree with the approach taken in the DFAR to encourage the 

Committee to provide any further documentation it may have such as photographs of volunteers 

participating in the dissemination of the candidate postcard and affidavits or declarations from 

individuals with personal knowledge of the volunteer activity associated with producing the 

mailers.