•'r.Ci-.lViin •••'" vu-..' • ••r . •••. 

20nNOV2O ?nU-Q^ 

FEDERAL ELECTION COMMISSION 

Washington, DC 20463 

November 20,2017 

MEMORANDUM 

To: The Commission 

r I 

Through: Alec Palmer 

Staff Director 

From; Patricia C. Orrock fbrPCO 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Douglas Kodish 

Audit Manager<2^ 

By: Jeff Spilizewski 

Lead Auditor ^ 

Subject: Audit Division Recommendation Memorandum on the Hawaii Democratic 

Party (HDP) (A13-07) 

Pursuant to Commission Directive No. 70 (PEC Directive on Processing Audit Reports), 

the Audit staff presented the Draft Final Audit Report (DFAR) to HDP on September 11, 

2017 (see attachment). In response to the DFAR, the committee provided additional 

information, as noted below. HDP did not request an audit hearing. 

This memorandum provides the Audit staffs recommendation for each finding outlined in 

the DFAR. The Office of General Counsel has reviewed this memorandum and concurs 

with the recommendations. 

Finding 1. Misstatement of Financial Activity 

A. Misstatement of Financial Activity - Most Recent Reports Filed Prior to 

the Audit 

The Audit staff determined that for 2011, beginning cash was overstated by 

$37,313 and ending cash by $37,495. For 2012, beginning cash was overstated by 
$37,495, receipts were understated by $18,700 and disbursements were overstated 

by $24,263.' In response to the Interim Audit Report (lAR), HDP Counsel stated 

that the Convention Account should not be considered a federal account and its 

activity should not be included in the misstatement. As such. Audit staff removed 

this activity from the misstatement finding amounts.^ Additionally, HDP filed 

amendments that materially corrected the errors for 2011 and 2012. 

The Audit staff recommends that the Commission find that HDP misstated its 

financial activity for 2011 and 2012 as stated above. 

B. Misstatement of Financial Activity - Original Reports Filed 

In response to the LAR, Counsel stated that the Convention Account should not be 

considered a federal account (see footnote 1). Since the majority of the misstated 

disbursement amount was due to the Convention Account, which is not required to 

be reported, the misstated amount of disbursements is reduced to $220,008. In 

response to the DFAR, Counsel made no further comments. 

The Audit staff recommends that for 2011 and 2012 the Commission find that 

HDP did not materially misstate its original disclosure reports. 

Finding 2. Receipt of Contributions that Exceed Limits 

In response to the lAR, HDP provided the remaining documentation showing all 

refunds had cleared the bank, and that all refunds were made untimely. HDP 

provided no response to the DFAR. 

The Audit staff recommends that the Commission find that HDP untimely 

resolved excessive contributions totaling $20,000. 

Finding 3. Receipt of Apparent Impermissible Funds 

In response to the lAR, HDP Counsel demonstrated convention activity was 

erroneously reported as federal by HDP (it was actually non-federal activity); that 

HDP had previously made refunds to some contributors; that an LLC was taxed as 

a partnership; and that vendor refunds were made. In addition. Counsel stated that 

amounts transferred from the federal account to the Convention Account (not a 

federal account) should be allowed to offset impermissible receipts. As a result. 

Audit staff reduced the amount of impermissible receipts by $38,045. Thus, the 

revised amount of impermissible receipts is $ 131,541. HDP untimely refunded 

$27,000 and filed amendments disclosing the remaining receipts totaling $104,541 

on Schedule D in response to the lAR and the DFAR. 

The Audit staff recommends that the Commission find that HDP accepted 

impermissible funds totaling $131,541, of which $27,000 was untimely refunded. 

' The misstatement amounts discussed in the response to the lAR section of the PFAR report were not 

reflective of inter-account transfer changes of S83,164 that occurred with the removal of the Convention . 

Account. The PFAR will reflect the adjusted numbers shown in this ADRM. 

^ The Audit staff also removed the Convention Account amounts from part B of the misstatement finding in 

the DFAR and adjusted the finding amount for impermissible funds (Finding 3). 
Finding 4. Reporting of Debts and Obligations 

In response to the lAR recommendation, HDP filed amended disclosure reports 

correctly disclosing ail amounts on Schedule D. HDP provided.no response to the 

DFAR. 

The Audit staff recommends that the Commission find that HDP failed to properly 

report debts and obligations totaling $115,967. 

Finding S. Recordkeeping for Employees 

In response to the lAR recommendation, HDP implemented a plan to maintain 

payroll logs to track employee's time spent on federal election activity. HDP 

provided no response to the DFAR. 

The Audit staff recommends that the Commission find that HDP did not maintain 

monthly logs totaling $60,923. This amount consists of payroll paid as follows to 

HDP employees: 

• Employees reported on Schedule H4 and paid with federal and nonfederal funds during the same month totaling $48,510 and: 

• Employees paid exclusively with non-federal funds in a given month 

totaling $12,413. 

Finding 6. Failure to Properly Report Media Related Expenditures 

The Audit staff determined HDP made coordinated expenditures totaling $129,725 

and exceeded its preauthorized coordinated spending limit by $27,125 in the 

Senatorial race involving Mazie Hirono.^ In response to the lAR, Counsel stated 

that a finding should not be for apparent independent expenditures that had been 

misreported because these expenditures were actually coordinated. In response to 

the DFAR, Counsel stated, that in a similar situation, the Commission found that 

the coordinated spending authority had been exceeded but the combined spending 

authority of the state party and national party had not been exceeded, irrespective 

of the lack of prior written authorizations." Also, Counsel stated that in the 

aforementioned situation that refunds from the benefitting campaign committee 

were not required and that the Commission should explain its inconsistent 

treatment if refimds are now required. The Audit staff does not recommend the 

refund for the excessive amount of coordinated expenditures due to a lack of prior 

authorization.^ 

The Audit staff recommends that the Commission find that HDP exceeded its 

coordinated spending limit by $27,125. 

The Audit staff incorrectly listed Mazie Hirono's Senatorial Campaign Committee as Hirono for 

Congress,-instead of Friends of Mazie Hirono. This information will be corrected in the PFAR. 

See the Final Audit Report of the Commission for the Democratic Executive Committee of Florida for the 

2008 election cycle and the related ADRM Vote Certification dated June 7,2012. 

The DFAR recommended that HDP obtain a refund from the candidate committee. This recommendation 

will be excluded in the PFAR. 
Finding 7. Allocation of Expenditures 

In response to the lAR, HDP provided declarations that demonstrated some of its 

employees were working less than 25% of the time on activities related to federal 

elections, that several of its disallowed expenses were in fact normal operating 

expenses, and that many of its disallowed expenses were in fact undisclosed Levin 

expenses for which amendments were filed. As a result, the Audit staff 

determined that no material overfunding of the federal account occurred from the 

non-federal account. HDP provided no response to the DFAR. 

The Audit staff recommends that the Commission find that HDP did not materially 

overfimd it federal accounts with funds from its non-federal accounts. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 

In case of an objection, Directive No. 70 states that the Audit Division 

Recommendation Memorandum will he placed on the next regularly scheduled open 

session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Jeff Spilizewski or Douglas Kodish at 694-

1200. 

Attachment: 

Draft Final Audit Report of the Audit Division on the Hawaii Democratic Party 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on the Hawaii 

Democratic Party 

(January 1, 2011 - December 31, 2012) 

Why the Audit Was 

Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any political 

committee that is required to 

file reports under the Federal 

Election Campaign Act (the 

Act). The Commission 

generally conducts such 

audits when a committee 

appears not to have met the 

threshold requirements for 

substantial compliance with 

the Act.' The audit 

determines whether the 

conunittee complied wii 

limitations, prohibitioi 

disclosure requi: 

the Act. 

Future 

TheCo] 

an enf( 

later time, 

of the matters dii 

this report. 

About the Committee (p. 2) 

The Hawaii Democratic Party^ is a state party committee 

headquartered in Honolulu, Hawan^or more information, see 

the chart on the Committee orgai^zi£l^, p. 2. 

Financial Activit 

• Receipts 

o Contributions^^ifdividi 

o Contributic^from Party and 

Politic^l^^mittees 

Transfers: 

Loans Receive 

sfers fi-om Nbn^ederal and 

imds 

Expenditures 

arty Expenditures 

ents Made 

of Contributions 

Other Disbursements 

eral Election Activity 

I Disbursements 

• Levin Receipts 

• Levin Disbursements 

210,653 

290,032 

111,387 

30,000 

122,196 

563,137 

$1,327,405 

$ 621,546 

129,725 

10,000 

20,227 

247,249 

272,159 

$1,300,906 

$23,564 

$23,564 

Findings and Recommendations (p. 4) 

• Misstatement of Financial Activity (Finding 1) 

• Receipt of Contributions that Exceed Limits (Finding 2) 

• Receipt of Apparent Impermissible Funds (Finding 3) 

• Reporting of Debts and Obligations (Finding 4) 

• Recordkeeping for Employees (Finding 5) 

• Failure to Properly Report Media Related Expenditures 

(Finding 6) 

• Allocation of Expenditures (Finding 7) 

' 52 U.S.C. §30111(b). 

^ On October 4,2016, the Hawaii Democratic Party changed its name to the Democratic Party of Hawaii. 
Draft Final Audit Report of the Audit 

Division on the 

Hawaii Democratic Party 

(January 1, 2011 - December 31, 2012) 
Table of Contents 

Page 

Part 1. Background 

Authority for Audit 

Scope of Audit 

Commission Guidance 

Part II. Overview of Committee 

Committee Organization 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Hawaii Democratic Party (HDP), undertaken by the Audit 

Division of the Federal Election Commission (the Commission) in accordance with the Federal 

Election Campaign Act of 1971, as amended (the Act). The Audit Division conducted the audit 

pursuant to 52 U.S.C. §30111(b), which permits the Commission to conduct audits and field 

investigations of any political committee that is required to file a report^der 52 U.S.C. §30104. 

Prior to conducting any audit under this subsection, the Commissio^n^perform an internal 

review of reports filed by selected committees to determine if 1 

committee meet the threshold requirements for substantial i 

§30111(b). 

>rts filed by a particular 

with the Act. 52 U.S.C. 

Scope of Audit 

Following Commission-approved procedures, 

as a result, this audit examined: 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions receiv^; 

4. the disclosure of disbursements, debts ai^bli 

5. the disclosure of expenses allocated betw^n fei 

6. the consistency between jppoijed figures 

7. the completeness of 

8. the disclosure of ind^i^dent ^pbnditures; 

9. other committee necesiary to the 

itors and 

accounts; 

Commissi 

Reques|;^M^rly Commissi 

Pursuant to dio^mmission' 

Considerationbf Eegal Questic 

unaffiliated with Hl^request 

covering the 20101 

logs under 11 CFR §1( 

funds. 

ition of a Legal Question 

^olicy^^fatement Establishing a Program for Requesting 

i by the Commission," several state party committees 

/early consideration of a legal question raised during audits 

Specifically, the Commission addressed whether monthly time 

[1) were required for employees paid with 100 percent federal 

The Commission concluded, by a vote of 5-1, that 11 CFR §106.7(d)(l) does require committees 

to keep a monthly log for employees paid exclusively with federal funds. Exercising its 

prosecutorial discretion, however, the Commission decided it will not pursue recordkeeping 

violations for the failure to keep time logs or to provide affidavits to account for employee 

salaries paid with 100 percent federal funds and reported as such. The Audit staff informed HDP 

representatives of the payroll requirement and the Commission's decision not to pursue 

recordkeeping violations for failure to keep payroll logs for salaries paid and correctly reported 

as 100 percent federal. This audit report does not include any findings or recommendations with 

respect to HDP employees paid with 100 percent federal funds and reported as such. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration December 17,1986 

• Audit Coverage January 1,2(^1 - December 31,2012 

Headquarters Honolulu,^v^i 

Bank Information 

• Bank Depositories 

• Bank Accounts ederahilfid^Three Non-Federal 

Treasurer > 

• Treasurer When Audit Was Conducted y/ Yuriko J. Sugimu?!a;(0^5/20/94 - 08/20/14); 

FloreW Kong Kee 098^4 - 07/09/16); 

-TantMy^ung (07/092re- Present) 

• Treasurer During Period Covered by Audit l^ufijco J. Sugimura 

Management Information 

• Attended Commission Campaign Finance^S^inar Yes 

• Who Handled Accounting and Recordke^n|\^ 

Tasks Vk 
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January 1,2011 8365 

Receipts 

o Contributions from Individuals 210,653 

o Contributions from ParW and Political Committees 290^032 

o Transfers from Affiliates 111387 

o Loans Received ,A,3M00 

122,196 

563.13f 

o Transfers from Non-federal and Levin Funds 

o Other Receipts 

Total Receipts 

Disbursements X 

o Operating Expenditures X^l.546 

o Coordinated Party Expenditures 

o Loan Repayments Made 

o Refunds of Contributions 

o Other Disbursements \ s 247,249 

o Federal Election Activity 272,159 

Total Disbursements \ \ S 1,300.906 

Cash-on-hand @ December 31,2012 \\ 

w 

j/ $ 5343^ 

32 Levin Cash-on-hand @ OctoBe^j, 2012 

Total Levin Receipts ^ 

Total Levin Disbursenien^X 

Levin Cash-on-hand @ 

$ _0_ 

23,564 

23,564 

0 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of HDP's bank activity with its most recent 

amended reports filed prior to the audit revealed material misstatenients in both 2011 and 

2012. In response to the Interim Audit Report (lAR) recommeuMti^ HDP filed 

amended disclosure reports for 2011 and 2012 which materiali^orrected the 

misstatements. Also, in response to the lAR recommencktio^SHDP Counsel (Counsel) 

stated that HDP did not believe the Convention Accoi^I^A) shbuRlvbe included in the 

misstatement finding. 

After consideration of Counsel's response am 

Counsel, the Audit staff determined, based oi 

federal account since its activity is non-federal. Col 

the CA and its activity from the missta^ment finding 

originally disclosed the CA activity on^eir.^deral . 

and receipts and disbursements for 2012%e^^rther m: 

The Audit staff recommends that HDP 

misstatements and reconcile its cash balanl 

with our Office,af:^neral 

on, that tho^CA is not a 

Audit staff excluded 

^ation. However, since HDP 

inning cash for 2011^ 

need to be corrected, 

rts to correct the 

In addition, a compj 

and 2012 also reve , 

comments in its respoi^e i 

the CA andits*HCttvily res 

: fieldwork, 

committeds^W exceeded \l 

were untime! 

one refund toi 

recommendation. 

; bank actb^W with its original reports filed for 2011 

aterihl/misstatement^^ifidisbursement activity. HDP made no 

action is required. The removal of 

le finding. (For more detail, see p. 7) 

ibutions that Ehcceed Limits 

udit steff identified contributions from two political action 

limimtion by $20,000. Both of the excessive contributions 

ver, documentation was not provided to demonstrate that 

cleared the bank. In response to the lAR 

provided documentation demonstrating the refund for $5,000 

had cleared the bankL^e Audit staff concludes that HDP untimely resolved excessive 

contributions totaling $20,000. (For more detail, see p. 11) 

Finding 3. Receipt of Apparent Impermissible Funds 

During audit fieldwork, the Audit staff identified 75 receipts, totaling $169,586, 

deposited into HDP's federal accounts during 2012 that appeared to be from 

impermissible sources. In response to the lAR recommendation, HDP Counsel stated 

^ The beginning cash misstatement amount flows through to cause an additional misstatement in ending 

cash for 2011 and beginning cash for 2012. 
that a majority of the impermissible contributions were received in connection with 

HDP's state convention; and therefore, Counsel believes that the CA should be removed 

from the impermissible funds analysis. Counsel stated that state convention activity 

should not be considered federal activity. Also, Counsel believes that amounts 

transferred from HDP's federal account^ to its CA for non-federal purposes (convention 

fundraising) should mitigate other impermissible funds. In addition, HDP showed that 

$5,080 of receipts were permissible, $27,000 of receipts were untimely refunded, and 

filed amended reports for $115,000 of impermissible receipts from corporations on 

Schedule D (Debts and Obligations). 

After consideration of Counsel's response and consultation with 

Counsel, the Audit staff determined, based on available infoi 

federal account since its activity is non-federal. Conseq 

that $22,006 in receipts deposited into the CA were not 

amount from the finding. In addition, the calculated 

contributions was reduced by $10,959 for transfers^add^ilhin a^ 

from one of the federal accounts to the CA leaving^ impermissible 

$104,451. 

Office of General 

It the CA is not a 

Audit staff concluded 

Je and excluded this 

issible 

timeframes 

iOf 

The Audit staff recommends that HDP file an amendbd^ort to reduce the debt amount 

for impermissible receipts on Schedu'lfeQto $104,541. i^m^the Audit staff recommends 

that HDP provide documentation that w^^allow the Audi(^ff^ determine if and to 

what extent impermissible receipts wered^o^etmn with ^^eral election. (For more 

detail, see p. 13) \\ V 

Finding 4. 

During audit field 

totaling $115,967* 

(Debts and (^g^ns) 

disclosure^^6it$]^>2011 

obligatid^on Schi 

of DebUvand (Hiligations 

:he Auditlstaff identified^bts and obligations from 17 vendors, 

itemized or v^fe under reported on Schedules D 

t^rtfiPthe-IAR recommendation, HDP filed amended 

reporting and disclosing these debts and 

detail, see p. 19) 

Findm^^ Recordkeepling for Employees 

During aumtsnfeldwork, the Audit staff determined that HDP did not maintain any 

monthly payroH^gs, as retired, to document the percentage of time each employee 

spent in connectrop^wijh^^ederal election. For 2011 and 2012, the Audit staff identified 

payments to HDP empjdyees totaling $60,923 for which HDP did not maintain monthly 

payroll logs. This consisted of $48,510 for which payroll was allocated between federal 

and non-federal funds, and $12,413 for which payroll was exclusively paid with nonfederal funds. The lAR recommended payroll logs be provided or in their absence that a 

plan be implemented to maintain payroll logs in the future. Counsel stated that the 

payroll logs could not be located but that HDP has implemented procedures to maintain 

the necessary documentation for payroll. (For more detail, see p. 21) 

' There were two federal accounts that made transfers to the CA. 
Finding 6. Failure to Properly Report Media Related 

Ebcpenditures 

During audit fieldwork, the Audit staff identified disbursements totaling $30,148, which 

appeared to be media related independent expenditures requiring disclosure on Schedule 

E (Itemized Independent Expenditures), that HDP disclosed on Schedule B, Line 30b 

(Federal Election Activity) and Schedule F (Coordinated Party Expenditures). Of the 

$30,148, HDP did not file the required 24-hour reports for those items that should have 

been reported on Schedule E totaling $29,725. 

In response to the lAR recommendation. Counsel stated these 

coordinated (and amended reports were filed showing these 

on Schedule F) and not independent expenditures. Coi 

expenditures exceeded HDP's coordinated expenditure liMt, thil 

result of an administrative oversight, a failure to contdl^m^Demc 

iture were 

liture as coordinated 

^t, although the 

occurred as a 

Senatorial 

Campaign Committee (DSCC) to obtain a higher^ 

As a result of HDP's response to the lAR rectTnfr 

HDP made coordinated expenditures totaling $129^ 

spending authority for $102,600. Therefore, HDP ex2 

$27,125. The Audit Staff recommeno^HOP seek a i 

the excessive amount. (For more detail,«seej>>^) 

; authority. 

I Audit staff^letdnnined 

: only had coordf 

1 its spending limit by 

am Hirono for Congress for 

Finding 7. Allocation of Ex] 

During audit fieldwork/^5i|^ew of disbui||thents m^eTfrom the federal and nonfederal accounts idratified a^apppent non-f^eral ovei^ding of activity in the amount 

of $82,722. In re^n^tp the MR recommendhtipi, HDP filed amended reports and 

submitted additional docmentation-ic^i^rtaii^xpenditures'. Based on the new 

documenta^nrthe..Mdiiht;aiK^ised]iits^ and concludes the non-federal 

account d^^^Tbve^nd th^dbral account (For more detail, see p. 28) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of HDP's bank activity witj^ts most recent 

amended reports filed prior to the audit revealed material misstemin^s in both 2011 and 

2012. In response to the Interim Audit Report (lAR) reconun^ndation, HDP filed 

amended disclosure reports for 2011 and 2012 which matendny^^^ the 

misstatements. Also, in response to the lAR recommwd^on, HEffi^unsel (Counsel) 

stated that HDP did not believe the Convention Acg^m^^A) should^Wncluded in the 

misstatement finding. 

After consideration of Counsel's response and cdrts^ltatior 

Counsel, the Audit staff determined, based on avail: 

federal account since its activity is non^ifederal. Cons 

the CA and its activity from the missttdement finding cali 

originally disclosed the CA activity on mfeit^ei:^ reports, 

and receipts and disbursements for 2012 ^re fi^eMnissI 

The Audit staff recommends that HDP arn^d 

misstatements and recoi^ile^cash balan: 

our Office^ftjeneral 

ion, that the CA is not a 

ly, the Audit staff excluded 

n. However, since HDP 

inning cash for 2011^ 

W need to be corrected, 

irts to correct the 

In addition, a com^bisdn^of I 

and 2012 also revealed 

comments in its response i 

theCA 

>P/s bank actii^ftjLwith its original reports filed for 2011 

atemenupf disbursement activity. HDP made no 

: lAR^dno^rther action is required. The removal of 

lis portion of the finding. 

Le^O^Staudard 

ContentaHd Reports. 

The amount ^cash-onl 

i^ust disclose: 

id at the beginning and end of the reporting period; 

The total i amq^t of re^ipts for the reporting period and for the calendar year; 

The total amoim( o^isbursements for the reporting period and for the calendar year; 

and 

Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 52 U.S.C. §30104(b)(l), (2), (3), (4) and (5). 

' See footnote 3. 
Facts and Analysis 

A. Misstatement of Financial Activity- Most Recent Reports Filed Prior to the 

Audit 

1. Facts 

The Audit staff reconciled HDP's reported financial activity with its bank records for 

calendar years 2011 and 2012. The following charts outline the discrepancies 

between HDP's disclosure reports and its bank records. The succeeding paragraphs 

explain why the discrepancies occurred. 

2011 Committee Activity 

Reported Banl^feefrds Discrepancy 

225 Beginning Cash-on-Hand @ 

January 1.2011 

$ 44,653 $36,288 

S, Overstated 

Receipts $282,712 7 * $295,136 ^ v\ $12, 

Njrid^ti 

$12,424 

itated 

^12,606 

l^derstated 

Disbursements 

Ending Cash-on-Hand @ 

December 31, 2011 

The beginning cash-on-hand was ovi 

unexplained, but likelY,r5sulted from 

The underst 

• Unrepor 

• Return deposit: 

520 

,288 ^d^K di 

$36,470 

Overstated 

. cont 

i resulted 

sutions^ 

the discrepancy is 

cies. 

1 the following: 

lents 

»plaine 

; Understai 

$12,156 

(50) 

318 

mm 

The uiid^t4tement ofdisbursements resulted from the following: 

• Unre^iTCcnn-kindlMntributions' $12,156 

• Disburserumt^npt^ported 4,890 

• DisbursemMts reported but not in bank activity (4,269) 

• Disbursement^mounts reported incorrectly 157 

• Return deposit items reported as disbursements 

instead of a negative entry on Schedule A (50) 

' All unreported in-kind contribution discrepancies during calendar years 2011 and 2012 were for 

disbursements paid by the Democratic National Committee (DNC) on behalf of HDP for voter file 

updates and maintenance. The DNC reported these transactions as in-kind contributions made to HDP. 

To help assure the correct cash balance is reported, these amounts should be disclosed as in-kind 

contributions on Schedules A and B. 

' See footnote 6. 
• Unexplained difference 

Net Understatement of Disbursements 

(278) 

^12,m 

The overstatement of $36,470 of the ending cash-on-hand was a result of the 

reporting discrepancies described above. 

2012 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash-on-Hand @ 

January 1,2012 

$ 48,990 $ 12,520 

-A. 

$ 36,470 

Overstated 

Receipts $875,660 $l,032p6?\ $156,609 

Understated 

Disbursements $895,253 $114,672 

Understated 

Ending Cash-on-Hand @ 

December 31,2012 

$ 29,397 

// 

34,864>^ V $ 5,467 

OiUnderstated 

The overstatement of beginning cash-on! 

discrepancies noted for 20II above. 

The understatement of receipts 

a result 

.:vnaci 

reporting 

3m the 

lents 

Unreported in-kind contribution^l^\^^ 

Receipts over-reported ^ jy 

Receipts under-reported Vi/y 

Over-reported^itemi^ receipts 

Return dep^tWms r^oMed as dish 

instead of a n^a^e entr\LPn Schedule 

Unexpiained di 

^ofvReceip 

ilderstatemenhof^sburseii^s resulted from the following: 

srted in-kirui contributions 

lents not reported 

Disbure^ents re^^ed but not in bank activity 

Disbursem^mH;e^rted as memo entry clearing bank 

Inter-accouimteansfer reported 

Disbursemem amounts reported incorrectly 

Return deposit items reported as disbursements 

instead of a negative entry on Schedule A 

Net Understatement of Disbursements 

$ 16,208 

(25,937) 

179,118 

(21,774) 

(1,665) 

10-659 

$156.609 

$ 16,208 

101,152 

(2,497) 

5,000 

(4.205) 

679 

_[L6651 

"SI 14-672 

The $5,467 understatement of the ending cash-on-hand was a result of the 2012 

reporting discrepancies noted above. 
10 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the misstated amounts. HDP representatives stated they 

would amend their reports in response to the lAR. 

The lAR recommended that HDP amend its disclosure reports to correct the 

misstatements and reconcile the cash balance on its most recent report to identify any 

subsequent discrepancies that could affect the reconunended adjustments. The lAR 

also recommended that HDP adjust the cash-on-hand balanc&^necessary, on its 

most recent report, noting that the adjustment is the result^ifiiorperiod audit 

adjustments. 

3. Committee Response to Interim Audit Rem 

In response to the lAR recommendation, HDP ^dS^ended dis 

2011 and 2012 that corrected the misstatemeiftkr The amended 201^ 

reports also added Levin activity that wa^>^o|pmvious^^,reported. In i 

Counsel stated that the HDP did not believe me^Ci^^dv^should havf 

included in this finding,' but decided not to remove* th^s account fn)m its federal 

reports when it filed amendmen 

and incorrectly included some of 

After consideration of Counsel's 

General Counsel, the Audit staff 

CA is not a federal ^ceunt since its e 

staff excluded th^ATmdTfe^activity 

which resultecyj^revisionvof the misstaf 

• BeginmngN:;^Kfor 

• Ending cash 

iwever, it ackm 

of this a 

nsultati 

;ed that it had inadvertently 

i^ts federal reports 

nth our Office of 

lie information, that the 

Consequently, the Audit 

the misst^fement finding calculation 

amounts as show below:^ 

by $37,313. 

tash for 2012 were overstated by 

lyerstated by $64,465. 

overstated by $107,427. 

The AildU^taff recomihehds that HDP amend its disclosure reports to correct the 

misstatei^rjts^qnd rec^i^ile the cash balance on its most recent report to identify any 

subsequent dis^^des that could affect the recommended adjustments. The Audit 

staff further re^i^mrads that HDP adjust the cash-on-hand as necessary on its most 

recent report, noting that the adjustment is the result of prior period audit adjustments. 

' Further explanation of Counsel's response is contained under the Committee's Response to the Interim 

Audit Report, Finding 3, Receipt of Apparent Impermissible Funds. 

' The amounts that need to be removed iVom the amended reports reflect the balances and 

activity of the CA. The CA beginning and ending cash balance for 2011 and the beginning cash balance 

for 2012 was SI,025 (the CA had a zero ending cash balance for 2012), the 2012 receipts activity was 

S221,074, and the disbursement activity was $222,098. 
11 

B. Misstatement of Financial Activity - Original Reports Filed 

1. Facts 

During audit fieldwork, in addition to examining HDP's most recent reports filed 

prior to the audit notification, the Audit staff compared HDP's originally filed reports 

with its bank records. The purpose of this additional reconciliation was to identify 

the degree to which HDP had misstated its original filings. 

The Audit staff calculated that HDP understated disbursements on the original reports 

filed by $358,942 over the two-year period (2011-2012). This figure includes the 

$12,606 and $114,672 understatement of disbursements fronuSOl 1 and 2012 

discussed in Section A. above (Misstatement of Financial ^ft^tivil^ Most Recent 

Reports Filed Prior to the Audit). 

2. Interim Audit Report & Audit Division 

The Audit staff discussed the understatement oj 

during the exit conference and provided HD 

schedule. HDP representatives had no sped 

The lAR recommended that HDP provide any 

necessary with respect to this ma 

omn^ndatiti 

is^sements of 

sntatives a cop) 

smmehts at the time. 

3. Committee Response to Interii 

HDP did not provide any additional 

disbursements on its original report 

the CA and its acti^d^resc^es this portii 

riginal reports 

le relevant 

lal comments it deemed 

Finding 2. 

Summ^^ 

lit fieldwidrk^ f 

coni^mttets that exceed 

were untiiMly^refunded. 

one refund tejaling $5,000 

'i^ontrib 

U^Report 

fe understatement of 

frthe?lactipi{ is required. The removal of 

i of the fiMing. 

ns that Exceed Limits 

recommendatibq, < 

had cleared the 

contributions totalinj 

Au^ stqff identified contributions from two political action 

le limilia^n by $20,000. Both of the excessive contributions 

ivec^ocumentation was not provided to demonstrate that 

cleared the bank. In response to the lAR 

ivided documentation demonstrating the refund for $5,000 

Audit staff concludes that HDP untimely resolved excessive 

,000. 

Legal Standard 

A. Party Committee Limits. A state, district or local committee of a political party may 

not receive more than a total of $5,000 per calendar year from a multicandidate 

political committee. 52 U.S.C. §30116(a)(2)(C) and 11 CFR §110.2(d). 

A state, district or local committee of a political party may not receive more than a 

total of $10,000 per calendar year from a non-multicandidate political committee. 52 

U.S.C. §30116(a)(1)(D) and 11 CFR §110.1(c)(5). 
12 

B. Handling Contributions That Appear Excessive. If a committee receives a 

contribution that appears to be excessive, the committee must either: 

• Return the questionable check to the donor; or 

• Deposit the check into its federal account and: 

o Keep enough money in the account to cover all potential refunds; 

o Keep a written record explaining why the contribution may be illegal; 

o Include this explanation on Schedule A if the contribution has to be itemized 

before its legality is established; 

o Seek a reattribution or redesignation of the excessive portion, following the 

instructions provided in the Commission regulations; and 

o If the committee does not receive a proper reattributmi^^designation 

within 60 days after receiving the excessive contrijjt^konirrefund the excessive 

portion to the donor. 11 CFR § 103.3(b)(3), (4)^ 

Facts and Analysis 

A. Facts 

HDP accepted contributions from two politi( 

limitation by $20,000. One contribution from a nc 

conunittee was received on March 15,2012 for $25,( 

contribution of $15,000. HDP untim^y<efunded the 

2012 (197 days later). 

com: that exceec^ the 

te politica^ction 

isulting in an excessive 

live portion on September 28, 

smonstrated the refund check had 

cleared the bank. 

The second contribution from a multicand^atej^iti^haclmnrammittee was received 

on October 19,2012 for^FOjOQO, resultin^ta^i^xc^ivp^ntribution of $5,000. HDP 

reported an untimel^dmnd'o^me excessiv^Mrtion on4une 19,2013 (243 days later); 

however,docume^^i^rrwasMt arovidedthe" ^ ——JJ -u—i.u.j 

idit Division Recommendation 

. Jter at the exit conference and provided HDP 

the appa^t excessive contributions. HDP reprerentatives 

he ti^^ 

IDP provide documentation demonstrating that the refund, 

June 19,2013, had cleared the bank. Absent that 

ommended that HDP void the original refund check and issue 

The IAR recoi 

totaling $5,000, 

documentation, it 

another refund for th^xcessive portion, or if funds were not available to make the 

necessary refund, disclose the excessive portion on Schedule D until funds became 

available to satisfy the obligation. 

C. Committee Response to Interim Audit Report 

In response to the lAR recommendation, HDP provided documentation demonstrating 

that the refund, totaling $5,000, had cleared the bank. The Audit staff concludes that 

HDP untimely resolved excessive contributions totaling $20,000. 
13 

Finding 3. Receipt of Apparent Impermissible Funds 

Summary 

During audit fieldwork, the Audit staff identified 75 receipts, totaling $169,586, 

deposited into HDP's federal accounts during 2012 that appeared to be from 

impermissible sources. In response to the lAR recommendation, HDP Counsel stated 

that a majority of the impermissible contributions were received in connection with 

HDP's state convention; and therefore. Counsel believes that the CA should be removed 

from the impermissible funds analysis. Counsel stated that state convention activity 

should not be considered federal activity. Also, Counsel believes that amounts 

transferred from HDP's federal account'^ to its CA for non-federm^i^oses (convention 

fundraising) should mitigate other impermissible funds. In ^mion, HDP showed that 

$5,080 of receipts were permissible, $27,000 of receipts w^ei^mely refunded, and 

filed amended reports for $115,000 of impermissible rec^^s fraiqbq^orations on 

Schedule D (Debts and Obligations). 

After consideration of Counsel's response and 

Counsel, the Audit staff determined, based oi 

federal account since its activity is non-federal, 

that $22,006 in receipts deposited into the CA were 

amount from the finding. In additionMhexalculated 

contributions was reduced by $10,959 fr)r>fr^sfers made 

indard 

ofProhibi 

comtfijtm^ may not 

or loans)>^m ±e foil 

• Coi 

• Labor 

• National 

lultation^with our Offib&oCi^neral 

on, that tnbGA is not a 

Audit st^ concluded 

rmissible and excluded this 

if impermissible 

iropriate timeframes 

from one of the federal accounts to the 

$104,451. 

The Audit staff recoi 

for impermissible, 

that HDP provide d 

what extent i 

impem^nble balance of 

ended report to reduce the debt amount 

;41. Also, the Audit staff recommends 

the Audit staff to determine if and to 

ion with a federal election. 

ions or 

bntrib^jbns - General Prohibition. Candidates and 

It corimbutions (in the form of money, in-kind contributions 

ng prohibited sources: 

ized by authority of any law of Congress; 

ons; 

(except a loan made in accordance with the applicable 

banking l^ws and regulations and in the ordinary course of business); 

Federal Government Contractors (including partnerships, individuals, and sole 

proprietors who have contracts with the federal government); 

Foreign Nationals (including individuals who are not U.S. citizens and not 

lawfully admitted for permanent residence); foreign governments and foreign 

political parties; and groups organized under the laws of a foreign country or 

groups whose principal place of business is in a foreign country, as defined in 

22 U.S.C. §611(b); and 

See footnote 4. 
14 

• In the name of another. 52 U.S.C. §§30118,30119, 30121, and 30122. 

B. Definition of Limited Liability Company. A limited liability company (LLC) is a 

business entity recognized as an LLC under the laws of the State in which it was 

established. 11 CFR §110.1(g)(1). 

C. Application of Limits and Prohibition to LLC Contributions. A contribution 

from an LLC is subject to contribution limits and prohibitions, depending on several 

factors, as explained below: 

1. LLC as Partnership. The contribution is considered a contribution from a 

2. 

3. 

partnership if the LLC chooses to be treated as a partni 

Revenue Service (IRS) tax rules, or if it makes no 

A contribution by partnership is attributed to each 

the partnership profits. 11 CFR §110.1 (e)(1) 

LLC as Corporation. The contribution is con: 

is barred under the Act-if the LLC chooses 

IRS rules, or if its shares are traded puWi., 

LLC with Single Member. The contri^t^ 

single individual if the LLC is a single-mi 

treated as a corporation under IRS rules. 11 

Internal 

bout its tax status, 

or her share of 

contribution-and 

ition under 

D. Limited Liability Company's R 

the time it makes a contribution, an 

• That it is eligible to make the con 

• In the case of anIstG-that consii 

the contributio^^hotild ^ attributed 

§110.1(g)(53C\ ^ 

E. Questiona! 

tUity to Not! 

jtify the 

lent Committee. At 

ient committee: 

ip (for tax purposes), how 

rC's members. 11 CFR 

3. 

4. 

ns»-4I a^ommmee receives a contribution that appears to 

contribUtioiQ, it must follow the procedures below: 

lurer receives the questionable contribution, the 

mittee i 

lution^o the contributor without depositing it; or 

ution (and follow the steps below). 11 CFR §103.3(b)(l). 

sits the questionable contribution, it may not spend the 

iusy?^prepared to refund them. It must therefore maintain sufficient 

Re the refunds or establish a separate account in a campaign 

depository forpossibly illegal contributions. 11 CFR §103.3 (b)(4). 

The committee must keep a written record explaining why the contribution may 

be prohibited and must include this information when reporting the receipt of the 

contribution. 11 CFR § 103.3(b)(5). 

Within 30 days of the treasurer's receipt of the questionable contribution, the 

committee must make at least one written or oral request for evidence that the 

contribution is legal. Evidence of legality includes, for example, a written 

statement from the contributor explaining why the contribution is legal or an oral 

explanation that is recorded by the committee in a memorandum. If the 

contribution cannot be determined to be legal, the treasurer shall, within thirty 
15 

days of the treasurer's receipt of the contribution, refund the contribution to the 

contributor. 11 CFR §103.3(b)(l). 

F. Contributions to delegate and delegate committees. Funds received for the 

purpose of furthering the selection of a delegate to a national nominating convention 

are contributions for the purpose of influencing a federal election. 11 CFR 

§110.14(c). . 

G. Federal v. Nonfederal Account. The federal account may contain only those funds 

that are permissible under the federal election law; the nonfederal account may 

contain funds that are not permitted under the federal law (bm>hi;e legal under state 

law), such as contributions that exceed the limits of the fed^kfwand contributions 

from prohibited sources, such as corporations and labo^^d^axtizations. 11 CFR 

§102.5 (a)(l)(i) and (a)(3). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff identified 

into HDP's federal account during 2012 that app 

The sources of these receipts were as>^l{o^^ 

Source 

Labor Unions^ 

CorporatiojT^^''""'X' \ 

Limit lies 

Unregister^Organi^figns'' 

»y/\ 

ing $169,^ deposited 

from impermissible sources. 

Total 

20 

$6,871 

$141,005 

$10,455 

$11,255 

$169.586 

The pi wes of th^ 

mtributions'^ 

tly for: 

totaling $96,421; 

^party convemion fees^i.e. registration fee, convention booth fee) - 49 

i^a^ims totaling ^15,085; and 

• DemocrathvNationAyConvention Credentials - 4 transactions totaling $58,000. 

Four of the receipts^orfi corporations, totaling $27,000, were untimely refunded. 

However, documentation was not available demonstrating the refund checks had cleared 

the bank. The remaining 71 receipts totaling $142,586 remain unresolved. 

Hawaii state campaign finance statutes permit the acceptance of funds by a party from 

labor unions, domestic corporations,'^ and limited liability companies in an aggregate 

" An unregistered organization is a political committee that has not registered with the Federal Election 

Commission. 

Three corporate contributions were erroneously disclosed as political action committees and two were 

erroneously disclosed as individuals. 
16 

amount no greater than $25,000 in any two-year election period. However, federal 

regulations prohibit such contributions to be deposited into a federal account or used to 

influence federal elections. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the apparent impermissible receipts. HDP representatives 

stated they would review the schedule. 

The lAR recommended that HDP submit dpciunentation demonstrating that these receipts 

were refunded in a timely matter, were timely transferred to a nra<f€;^al account, or 

were not from prohibited sources. Absent this documentatiovtodT}® recommerided 

that HDP refund the impermissible receipts or if funds wer&^r^ailable to make the 

necessary refunds, disclose the impermissible receipts on>ScnMt(^^ until funds become 

available to satisfy the obligation. In addition, with ^Mi^o receim^^ived for the 

Hawaii state party convention, the lAR recommei^^lhht HDP subm^(^umentation 

demonstrating that these receipts were not obtain^in cormection with aNi;v^in^ing 

convention that nominated candidates for feds^office. 

C. Committee Response to Interim Audit Reporf 

In response to the lAR recommendation,^ounsel statedM^^t^ majority of the 

impermissible contributions were receiYe^n.connection wi^HDE's state convention, 

and that these contributions were merelj^miss^^^rou^ contriouti^s used to underwrite 

the state convention.''* Counsel explainecUhat ^i^ountw® established for the sole 

purpose of administeringJIEXE^s biennial c^y^tion^^"^at Commission regulations 

specifically permit 

convention expeni 

purpose. Accordi' 

should be required 

(11 C.F.R 

$56,00pi;J^om it^ 

^ shortfall 

amdunf 

HDP had 

exclusive! 

1 all funds deposited 

insellargued that no I 

^ entic«i_e; 

non-tetleral funds to pay for 

this account were used solely for that 

ibiusement to the non-federal account 

inses are payable with non-federal funds 

had done so pr^^usly. Fi 

included contribi 

believed these co 

11 C.F.R. §102.5(b; 

d-imih^diately. Also, that a transfer of funds, 

^ uritJo the CA had occurred to cover a convention 

it should bq^itsidered a mitigating factor when considering the 

isdeposits.'VCounseyalso stated, that subsequent to the 2012 convention, 

ly paid for|Convention expenses directly from non-federal accounts, and 

• ally. Counsel pointed out that state convention contributions 

unregistered candidates for local office and that HDP 

had sufficient permissible funds to make contributions under 

'^16 

" Foreign corporations, including a domestic subsidiary of a foreign corporation, a domestic corporation 

that is owned by a foreign national, or a local subsidiary where administrative control is retained by the 

foreign corporation are prohibited under Hawaii state campaign finance statutes. 

" Counsel reiterated his response to Finding 1, Misstatement of Financial Activity, that stated the CA 

should not be considered a federal account, and that state convention expenses are payable with non 

federal funds. 

Transfers from other federal accounts into the CA totaled S78,164. 

" The Audit staff was not provided documentation to support this contention; the unresolved amount is 

$300. 
17 

The Audit staff disagrees with Counsel that a majority of the impermissible contributions 

were received in connection with HDP's state convention. Of the $169,586 in 

impermissible receipts identified in the lAR, only $22,006 (or 13%) were deposited into 

the CA." The remaining $147,580 (or 87%) were not identified as state party convention 

related and were deposited into other federal accounts. 

The Audit staff agrees with Counsel that the CA receipts and expenditures were used for 

administering HDP's biennial convention. However, the Audit staff notes that as part of 

the initial audit process, bank account information was gathered, and this information 

included confirmation from HDP's Executive Director that the CA was a Federal 

account. As such, during the 2011 and 2012 audit period, the CA^^as treated as a federal 

account by HDP. All receipts, expenses and account balancea,d|pflu^ccount were 

reported as federal activity on its disclosure reports and non^ra^is activity was 

disclosed on its state reports filed with the State of Haw^i^ampaign Spending 

Commission.'^ Because HDP reported activity for thp^^^ a fed^^account and 

confirmed to the Audit staff it was a federal accoimt^th^udit stafffe^ed it as such. As 

a federal account, these receipts were subject tq^hdprohibitions of the MP 

In response to Counsel's statement that HDP prop 

and subsequent to the 2012 election cycle, the Audit^si 

coverage periods and cannot speak tdtwhether HDP pr(^ 

convention expenses. However, the Aidjtsta^oted 

conventions, beginning in 2004, that -

and the state party convention expenses 

but none of this activity wasdisclosed on 

Campaign Spending " 

that: 

lyention: 

mention expqh^es prior to 

. not audit HDP for Aese 

lid for these state 

svious four state 

: reported as receipts 

Its on its federal reports, 

1 with the State of Hawaii 

The selection of HDP^fegatesjt^the DNC conv^tion occurs, per its constitution and 

bylaws, at its stat^on>^qtibn.3S-4!^AR.tep9i]^endation requested documentation that 

would shm^DFdidjmt receive impdrmissime funds that were used for a nominating 

convenj^'lhat nohiqi^d cam^tes for federal office. No additional documentation 

aboutfm^sage of im^rmissible^^i^ts was provided. Lacking this information, and 

witnthe^ormation avallal^^ to d^t^ the Audit staff cannot determine if and to what 

receipt^ were in connection with a federal election. After 

sponse and consultation with our Office of General Counsel, 

ed on available information, that the CA is not a federal 

hot federal. Consequently, the Audit staff concluded that 

extent imj 

consideration 

the Audit staff 

account and its actf 

-rs 1 J 7 

$22,006 in receipts deposited into the CA were not impermissible and excluded this 

amount from the finding. 

These deposits consisted of £19,021 (or 11%) reported as state party convention fees and $2,983 (or 2%) 

not reported as state party convention related. 

HDP did not report transfers from other federal accounts, which corresponds to the account being treated 

as Federal. Also, as mentioned in the Misstatement Finding (Finding 1), the Committee had an 

opportunity, in response to the lAR, to file amended reports to exclude the CA, but did not. 

Some other convention expenses, such as county convention expenses, were reported on HDP's state 

reports. 

2012 By-Laws of the Democratic Party of Hawaii and the 2012 Constitution of the Democratic Party of 

Hawaii. 

18 

19 

20 
18 

Also, in response to the lAR recommendation, HDP filed amended reports disclosing ten 

impermissible receipts from corporations, totaling $115,000, on Schedule D. Counsel 

stated that the impermissible funds will be refunded to the donors, if and when fimds 

become available. Counsel reiterated his statement that HDP should be allowed to reduce 

the impermissible amount based upon transfers of Federal fimds to its CA (as mentioned 

earlier in this section). However, most of the transfers ($67,205 of the $78,164) were not 

related to the impermissible receipts as the transfers were made prior to the receipt of the 

impermissible contributions. Accordingly, the Audit staff reduced the finding amount by 

$10,959 for transfers made within the permissible timeframes.^' 

Other items addressed in Counsel's response were as follows:^ 

for two vendor refunds; documentation demonstrating that i 

fix)m an LLC having non corporate tax status; and documjmtatit 

receipts from corporations, totaling $27,000, were unjiin^ refunc 

had been deposited by the contributor. 

in receipts were 

;ipt for $5,000 was 

lonstrating that four 

that the refunds 

The Audit staff reviewed Counsel's responi 

determined that the $80 in receipts were vendor 

from the LLC was a permissible receipt, both of whf 

Also, that $27,000 was untimely refUhded to four corpo 

The chart below shows the description a^ arn^i 

adjustments for information provided in HDP's 

itation provided/ind 

contributio^f $5,000 

finding amount was reduced, 

itities. 

lie receipts after 

JAR. 

lescrii 

lAR Impermissible Recei^ 

Impermissibl^-eeeiptedepo^t'ed~lhto4:h^0i^ntion Account 

Corporatec^ntribution^sclowdon Scheduled reduced by 

FederaUf^sfers occurrin^ithm>i)(^rqii^^^ timeframes. 

Venc 

LLC taxed^s^partnership 

Amount of Iin^miussible Receipts before Refunds 

Less: Amount D^q^elj^efunded 

Remaining ImpermMsijble Funds (Schedule D) 

Number of 

Transactions Total 

75 $169,586 

(57) ($22,006) 

(0)22 ($10,959) 

(2) ($80) 

(1) ($5,000) 

15 $131,541 

(4) ($27,000) 

11 $104,541 

The Audit staff concludes that HDP accepted 15 impermissible receipts totaling 

$131,541. However, HDP untimely refunded $27,000, so that $104,541 needs to be 

reported on Schedule D ($500 remains unresolved). The Audit staff recommends that 

11 C.F.R. §103.3(b) allows 30 days for refunds of impermissible receipts. 

The amount of an impermissible corporate contributions to which the transfer of $10,959 was applied 

only partially reduced the impermissible contribution amount, as such, the number count of 

impermissible contributions did not change. 
19 

HDP file an amended report to reduce its disclosure of impermissible receipts on 

Schedule D to $ 104,541. Also, the Audit staff recommends that HDP provide 

documentation that would allow the Audit staff to determine if and to what extent 

impermissible receipts were in connection with a federal election. 

Finding 4. Reporting of Debts and Obligations 

Summary 

During audit fieldwork, the Audit staff identified debts and obligations from 17 vendors, 

totaling $115,967, which were not itemized or were under reported on Schedules D 

(Debts and Obligations). In response to the lAR recommendation^HDP filed amended 

disclosure reports for 2011 and 2012 correctly reporting and di^&^g these debts and 

obligations on Schedule D. 

Legal Standard 

Reporting of Debts and Obligations. 

A. Continuous Reporting Required. Apoliti 

and nature of outstanding debts and obligaji 

U.S.C. §30104(b)(8) and 11 CFR §§104. 

B. 

:ee must i 

>se debts are i 

Separate Schedules. A politicalxommittee must 

owed by the committee and debts^^ed to the comnu 

explaining the circumstances and co^nditionsjunder whicl 

was incurred or extinguished. 11 CFR^ § 1 

C. Itemizing Debts and'OBligations. 

• A debt of S^OTor lessnnust be reporti 

the date in£iwi;e^the datejof the tran 

regularly schedule^e^rt:— 

• A (kbt-exeeq^ng $5^0()Cn^ 

lehthe^bNvas irtcmted. 11 CFI 

the amount 

led. 52 

ite schedules for debts 

together with a statement 

iebt and obligation 

1 once it has been outstanding 60 days from 

ion); the committee reports it on the next 

in the report that covers the date on 

§104.11(h). 

--Ji^KS by Committee StaffOther Individuals. 

1. ScqM. This section applie^o individuals who are not acting as commercial 

ven^mSJndividuals .who are acting as commercial vendors shall follow the 

requir^^ts of lySFR §§116.3 and 116.4. 

2. The treatmMta^contributions. The payment by an individual from his or her 

personal fun^,rmcluding a personal credit card, for the costs incurred in 

providing go^s or services to, or obtaining goods or services that are used by or 

on behalf of, a candidate or political committee is a contribution unless the 

payment is exempted under 11 CFR 100.79, it shall be considered a contribution 

by the individual unlessa) The payment is for the individual's transportation expenses incurred while 

traveling on behalf of a candidate or political committee of a political party or 

for usual and normal subsistence expenses incurred by an individual, other 

than a volunteer, while traveling on behalf of a candidate or political 

committee of a political party; and 
20 

3. 

b) The individual is reimbursed within sixty days after the closing date of the 

billing statement on which the charges first appear if the payment was made 

using a personal credit card, or within thirty days after the date on which the 

expenses were incurred if a personal credit card was not used. For purposes 

of this section, the closing date shall be the date indicated on the billing 

statement which serves as the cutoff date for determine which charges are 

included on that billing statement. In addition, "subsistence expense" includes 

only expenditures for personal living expenses related to a particular 

individual traveling on committee business, such as food or lodging. 11 CFR 

§116.5(b). 

Treatment as debts. A political committee shall treat tl^Migation arising from 

a payment described in paragraph (b) of this section a§^^^outhanding debt until 

reimbursed. 11 CFR §116.5(c). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff used 

the accounts^^ of 17 HDP vendors. This review i 

these vendors, totaling $115,967 that were not itemi 

D. Of this amount, $68,744 were de^s-rjot reported, 

under reported. These vendors provid^djlDRwith servii 

accounting, database accounting softwac 

telephone, copier lease, and staff reimbur 

ent recor 

eBts and oblif 

ncile 

msfiom 

under reported on Schedules 

were debts that were 

office space, polling. 

jsite^stmg, 

>24 

insurance. 

B. Interim Audit Rc 

The Audit staff dis 

representatives a: 

under reported. HDP: 

obligatic 

idit Division^ecomm^ndation 

jter at the eim^onference and provided HDP 

^vof the debts and oblig^ns that were not itemized or were 

atedjh^ would review the schedule of debts and 

The h^recommended>tha(^HDPvprovide additional documentation demonstrating that 

these^ut^fihons were not ojsligatjbns which required reporting on Schedule D. Absent 

such documentation, the ^dit staff recommended that HDP amend its reports to 

correctly rep^ai^ disclose Ihese debts and obligations on Schedule D. 

C. Committee to Interim Audit Report 

In response to the l^R!recommendation, HDP filed amended disclosure reports for 2011 

and 2012 that correctly reported and disclosed these debts and obligations on Schedule D. 

^ The reconciliation consisted of calculating invoiced and paid amounts for each reporting period in the 

2011-2012 election cycle. The Audit staff then determined whether any outstanding debts were 

correctly disclosed on Schedule 0. Each debt amount was counted once, even if it required disclosure 

over multiple reporting periods. 

^ Staff reimbursements consisted of three individuals with debts not reported totaling $10,768 and debts 

under reported totaling S1,998. 
21 

Finding 5. Recordkeeping for Employees 

Summary 

During audit fieldwork, the Audit staff determined that HDP did not maintain any 

monthly payroll logs, as required, to document the percentage of time each employee 

spent in connection with a federal election. For 2011 and 2012, the Audit staff identified 

payments to HDP employees totaling $60,923 for which HDP did not maintain monthly 

payroll logs. This consisted of $48,510 for which payroll was allocated between feder^ 

and non-federal funds, and $12,413 for which payroll was exclusively paid with nonfederal funds. The TAR recommended payroll logs be provided or in their absence that a 

plan be implemented to maintain payroll logs in the future. Coume^tated that the 

payroll logs could not be located but that HDP has implemeqtd^rocedures to maintain 

the necessary documentation for payroll. 

Legal Standard 

Maintenance of Monthly Logs. Party committ^'ibust 

percentage of time each employee spends in ^nn^tion 

Allocations of salaries, wages, and fringe beneli'tsJitqto 

• Employees who spend 25 percent or less oftlmi 

month on federal election actmties must be pm 

or be allocated as administrative co 

Employees who spend more thanV 

month on federal election activitie 

Employees wlm'^pe^ncme of theirN 

federal electiefr^ctivifies may be paic 

law. 11 CFR>§r06.7(d)fil). 

:eep a monthly log of the 

a federal eR 

iertaken as fd 

ated time In a given 

ler from the federal account 

ipensated time in a given 

from a federal account; and 

ipensate^fime in a given month on 

itirely with funds that comply with state 

Facts anc lis 

: fieldwork,^the^Audit\mff reviewed disbursements for payroll. HDP did not 

maintain hq^monthly paj^oll logs'or equivalent records to document the percentage of 

time each empjWe spent m,connection with a federal election. These logs are required 

to document tnb^bper all^ation of federal and non-federal funds used to pay employee 

salaries and wagesvj^r''2011 and 2012, HDP did not maintain monthly logs for $60,923 

in payroll.^^ This aimunt includes payroll paid as follows to HDP employees: 

1. Employees r^orted on Schedule H4 (Disbursements for Allocated 

Federal/Nonfederal Activity) and paid with federal and non-federal funds during 

the same month (totaling $48,510); and 

2. Employees paid exclusively with non-federal funds in a given month and not 

reported by HDP (totaling $12,413). 

" This total does not include payroll for employees paid with 100 percent federal funds and reported as 

such (see Part I, Background, Commission Guidance, Request for Early Commission Consideration of a 

Legal Question, Page I). Payroll amounts do not include fringe benefits. 
22 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the disbursements for payroll lacking monthly payroll logs. 

HDP representatives had no specific comments at the time. 

The lAR reconunended that HDP provide evidence that it maintained monthly time logs 

to document the percentage of time an employee spent in coimection with a federal 

election; or implement a plan to maintain monthly payroll logs in the future. 

3. Committee Response to Interim Audit Report 

In response to the lAR recommendation, HDP stated that it 

requested in the lAR, but has implemented procedures that 

documentation in connection with payroll and fringe bei 

such, HDP has complied with the Interim Audit Re 

implementing a plan to maintain monthly payroll Ipjgsr^l^e 

HDP did not maintain monthly logs for payroll^o^ng $6j),923. 

Finding 6. Failure to Properly 

E«xpenditures 

ite the time logs 

aintain the necessary 

in the future. As 

by 

iudes that 

Summary 

During audit fieldwork, the Audit staff ii 

appeared to be media related independent 

E (Itemized IndependenrBjtii^nt^itures), 

(Federal Election i^tiyity) a^S.bhedule F (i 

$30,148, HDP di(fcfio(file the required 24-ho 

been reported on Scheduli^E^t9(aling.$29,72S. 

In respoi 

coordi 

on 

expenditures^ 

result of an 

Campaign 

(totaling $30,148, which 

Ing disclosure on Schedule 

)P discldseTd on Schedule B, Line 30b 

^rdinated Party Expenditures). Of the 

srts for those items that should have 

ation. Counsel stated these expenditure were 

(and amdh^ed^eport^ we^filed showing these expenditure as coordinated 

F) and not mde^endent^xpenditures. Counsel added that, although the 

(ceeded HDP'^ coordinated expenditure limit, this only occurred as a 

ustrative oversight, a failure to contact the Democratic Senatorial 

iittee (DSCC) to obtain a higher spending authority. 

As a result of HDP'^rp^ponse to the lAR recommendation, the Audit staff determined 

HDP made coordindmd expenditures totaling $129,725, but only had coordinated 

spending authority for $102,600. Therefore, HDP exceeded its spending limit by 

$27,125. The Audit Staff recommends HDP seek a refund from Hirono for Congress for 

the excessive amount. 

Legal Standard 

A. Definition of Independent Expenditures. An independent expenditure is an 

expenditure made for a cormnunication expressly advocating the election or defeat of 

a clearly identified candidate that is not made in cooperation, consultation, or concert 
23 

with, or at the request or suggestion of, a candidate, a candidate's authorized 

committee, or their agents, or a political party or its agents. 

A clearly identified candidate is one whose name, nickname, photograph or drawing 

appears, or whose identity is apparent through unambiguous reference, such as "your 

Congressman," or through an unambiguous reference to his or her status as a 

candidate, such as "the Democratic presidential nominee" or "Republican candidate 

for Senate in this state." 

Expressly advocating means any communication that: 

• Uses phrases such as "vote for the President" or "re-electy^ Congressman" or 

conununications of campaign slogan(s) or individual w^d^aJrWhich in context 

can have no other reasonable meaning than to urge^pcmn or defeat of one or 

more clearly identified candidates; or 

• When taken as a whole and with limited referai^ko extelrfd^ents, such as 

proximity to the election, could be interprel^b'^ reasonable>i^K^n only as 

advocating the election or defeat of one^o^more clgarly identifi^^didates. 11 

CFR §§100.16(a), 100.17 and 100.22^ 

B. Disclosure Requirements - General Guidelin 

be reported on Schedule E if, whSh-^a^ed to other i 

the same payee during the same cfflepH^yMr, it exo 

expenditures made (i.e., publicly dis^^n^i),.pnor to 

as memo entries on Schedule E and as a de^>n.^l 

expenditures of $20^or-less need not o^temized, 

the total of those e^endit^es on line (l^on Schedi 

104.4(a) and \ 

independent expenditure shall 

it expenditures made to 

;0Q« Independent 

it should be disclosed 

Independent 

the committee must report 

llCFR§§104.3(b)(3)(vii), 

^orts (24-Hour Reports). Any 

)00 or more, with respect to any given 

C. Last-Minute Indepem« 

litures.agg 

^^er tiib^2b"' day but more than 24 hours before the day of an 

. arted andNt^^eport must be received by the Commission within 

lifter the ex^enb^iture is made. A 24-hour report is required each time 

additidh^ndependentffixpenditures aggregate $1,000 or more. The 24-hour report 

must be fhq^n a Sch^^le E. The date that a communication is publicly 

disseminated^ryes a^the date that the committee must use to determine whether the 

total amount of Independent expenditures has, in the aggregate, reached or exceeded 

the threshold repprting amount of $1,000. 11 CFR §§ 104.4(f) and 104.5(g)(2). 

D. Independent Expenditure Reports (48-Hour Reports). Any independent 

expenditures aggregating $10,000 or more with respect to any given election, at any 

time during a calendar year, up to and including the 20th day before an election, must 

be disclosed within 48 hours each time the expenditures aggregate $10,000 or more. 

The reports must be filed with the Commission within 48 hours after the expenditure 

is made. 11 CFR §§ 104.4(f) and 104.5(g)(1). 
24 

E. Requirements for Maintaining Records. Reporting committees are required to 

maintain records which provide, in sufficient detail, the information finm which the 

filed reports may be verified. 11 CFR §104.14(b)(1). 

F. Coordinated Party Expenditures. National party committees and state party 

committees are permitted to purchase goods and services on behalf of candidates in 

the general election—oveir and above the contributions that are subject to contribution 

limits. Such purchases are termed "coordinated party expenditures." They are 

subject to the following rules: 

• The amount spent on "coordinated party expenditures" is limited by statutory 

formulas that are based on the Cost of Living Adjustmenj<(^LA) and the votingage population. 

• Party committees are permitted to coordinate the 

committees. 

• The parties may make these expenditures onl^ 

election. 

• The party committees—not the candidate'^—are 

expenditures. 

with the candidate 

If the party committee exceeds the limits o: 

excess amount is considered an in-kind contribqdi 

limits. 52 U.S.C. §30116(d) Ind-U CFR §§109. 

the general 

these 

i party expemitures, the 

, subject to the contribution 

id 109.32. 

G. Assignment of Coordinated Party 

assign its authority to make coordinai 

committee. Such amassignment must 

authority assign^^md 6e,^^eived by thi 

expenditure is^d^W^rsuant to the assi^ 

assigned authorit^q^ihake cootdiMted pa 

assignmentToiLat leastvt^e'years, ThGFJ 

Fad id Analysis^ 

Repc 

mdjtHrcL Limit. ')^olitical party may 

to another political party 

le m wmmg, state the amount of the 

gnee fefore any coordinated party 

i^t. The political party committee that is 

:penditures must maintain the written 

'§§104.14 and 109.33(a) and (c). 

enditures 

1. Facts 

During audit 

reporting comp 

noted that HDP 

of Indep^dept Es 

)J 

irk/the Audit staff reviewed disbursements to ensure the 

IS and accuracy of independent expenditures. The Audit staff 

e media-related expenditures totaling $30,148 and disclosed them 

as Federal Election Activity or Coordinated Party Expenditures that may be 

considered independent expenditures. A breakdown of the analysis for these 

expenditures is as follows: 

Apparent Independent Expenditures Reported as Coordinated Party 

Expenditures and Federal Election Activity (Copy of Communication Made 

Available) 

HDP made 18 apparent independent expenditures totaling $30,148 for which it 

provided supporting documentation such as invoices, scripts, ads, etc. 
25 

i) For apparent independent expenditures totaling $ 18,226, the 

communications contained language expressly advocating the election or 

defeat of a clearly identified candidate as defined under 11 CFR 

§ 100.22(a). This amount consisted of costs associated with 16 radio 

advertisements and one newspaper advertisement containing express 

advocacy.^® The radio advertisements included the statement: "And on 

November 6th, let's furlough Linda Lingle!", and included the disclaimer, 

"Paid for by the Democratic Party of Hawaii, which is responsible for the 

content of this advertising". 

The 16 radio advertisements were disclosed on^ 

Party Expenditures. Aside from being repoi 

Expenditures, no documentation was avajJ^le 

coordination. Also, Counsel for HDP beli^ed th< 

not coordinated. Given these reason^the^Audit st 

F as Coordinated 

Coordinated Party 

iting 

iditures were 

'esthe 

communications should have b ^ 

However, should HDP continu^^aini 

advertisements were not coordinat 

its spending limit by $15,203. 

The newspaper advertwe^nti 

the General Election" wft^pret 

Mazie Hirono, and Tulsi ^bbi 

disclaimecjiP-aid for by Paid^; 

ported as Independe 

it these radid^ 

:ee would ] 

iditures. 

ve exceeded 

eluded the 

low of 

candidate 

u^it staff belfe 

ndent Exi 

it: "Vote Democrat in 

Obama, Joe Biden, 

ent included the 

Vbte>H^v^aii 2012," Not authorized by 

iittee". ^ven the content and the 

the communication should have been 

1 asx^i^dg^end^ bx] 

_.:ior^^pparent^^e^dentjBxpenditure totaling $11,922, the production 

^Me;si|;n co»s.^sociated with a television advertisement were paid by 

HDP. htUFThe^elevision^d^ertisei me t^ievisi^ advertisement depicted the Hawaii Senatorial 

candidate^Lihda Lipgle, making a speech at the 2008 Republican National 

invention); While this depiction continued, the narrator stated the 

^didate, "Linda Lingle, was wrong then, about a lot of things, and she's 

, fo^Hawaii now." The Audit staff believes the phrase, "she's 

wrong f^'Hawaii" was express advocacy because it had the same 

mean^g as "defeat" and therefore could have no other meaning than to 

urge the defeat of the Candidate. The television advertisement was 

disclosed on Schedule B, Line 30(b) as Federal Election Activity and 

included the disclaimer, "Paid for by Vote Hawaii 2012, not authorized by 

any candidate or candidate's committee". Given the content and the 

disclaimer, the Audit staff believes the cost associated with the 

communication should be reported as an Independent Expenditure. 

^ The newspaper advertisement was not itemized on the FEC report (cost, S423). 

" This newspaper advertisement was paid for by the Democratic Party of Hawaii. 
26 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of disclosure errors for independent expenditures. HDP 

representatives stated they would review the schedule. 

The lAR recommended that HDP provide documentation and evidence that apparent 

independent expenditures totaling $30,148 did not require reporting as independent 

expenditures. Absent such evidence, the lAR recommended that HDP amend its 

reports to disclose these disbursements as independent expenditures on Schedule E 

and submit revised procedures for reporting independent expetiditures. 

3. Committee Response to Interim Audit Report x 

In response to the lAR recommendation, Counsel stq^^K^, 

independent expenditures were coordinated (and arnended re^ii 

apparent 

filed showing 

these expenditure as coordinated on Schedule 

Counsel also noted that, although the total c( 

coordinated limit, it was only because of |in> 

contact DSCC to obtain a higher spending ai 

letter from the DSCC Counsel stating that $S,Oi 

was transferred to HDP on NovefhbeM, 2012; and'h^^^pP requested additional 

spending authority, he knew of no\e^on-.J5^y spendin^<abthodty would have been 

withheld. Also, the letter provides aqditionali^Qordinated''SBiending authority to 

DSCC in the amount of $92,097. 

indepera^ntsexpenditures. 

inated expenditures^exb^ded HDP's 

linistrad^ oversight Jl^lure to 

response also included a 

rdinated spending authority 

The Audit staff a^rats-HDKs characterization of th^e communications as 

coordinated expradhures and not as indepmdent expenditures. However, the Audit 

'Vradio a^ertisementsAmtSling $17,803, included disclaimer 

wording for a comm\ihibatibn^tiautlyaiz^ by a candidate ("Paid for by the 

Dem(^K[fi6"Pmty;wof Hawaiiywiiichis-cesponsible for the content of this advertising"). 

Simi^Iy, the^evlsion ^vertisement, totaling $11,922, included disclaimer wording 

^^^mmunicatibn not aut^ioriz^*by a candidate ("Paid for by Vote Hawaii 2012, 

nmh^qrized by any^andidat^q or candidate's committee"). 

After fuithqr^eview, thb newspaper advertisement classified by the Audit staff as an 

apparent indb^ndei^^penditure, totaling $423, was determined to be federal 

election activit^^frectly reported on Schedule B, Line 30(b). 

Amended reports, filed in response to the lAR, disclosed thel6 radio advertisements 

and the television advertisement on Schedule F as coordinated expenditures. This 

was in addition to a television advertisement, totaling $100,000, previously reported 

as a coordinated expenditure on Schedule P. One television advertisement supported 

the democratic senatorial candidate for general election. The radio advertisements and 

^ As part of its response, HDP requested that the Final Audit Report reflect that the HDP's spending limit 

did not exceed the combined coordinated expenditure limit for the 2012 Hawaii Senate election. 
27 

second television advertisement opposed the republican senatorial candidate for 

general election. Coordinated expenditures reported on Schedule F totaled $129,725. 

The Audit staff disagrees with HDP's application of the DSCC's coordinated 

expenditure authority after HDP made coordinated party expenditures. Neither HDP 

nor the DSCC could locate a record authorizing additional spending authority. 11 

CFR § 109.33(a) requires that an assignment must be made in writing, state the 

amount of the authority assigned, and be received by the assignee before any 

coordinated party expenditure is made pursuant to the assignment. 

In similar cases, the Commission has rejected assignments oT^mding authority after 

the fact, but did acknowledge in one of the cases that the C^inube had not 

exceeded its combined coordinated expenditure limit,^^/^ibh would be the case for 

HDP. 

In response to Counsel, the Audit staff revised ill^scltiBdule of < 

expenditures to include $30,148 of media reldtM expenses that wen 

thought to be independent expenditures. Jhe^ised schedule of < 

(iously 

expenditures totals $129,725 but HDP had 

$102,600.^° The Audit staff determined HDP exc 

by $27,125, and recommends that'H^ obtain a ref 

this amount. \ 

B. Failure to File 24/48-Hour Reports ^r In 

jding authority of only 

its coordinated spending limit 

}m Hirono for Congress for 

lenditures 

1. Facts yy-—^ 

The Audit sta^reviewed th^ apparent ind^endent expenditures noted above to 

determine whrai^p-addUionalj-eporting of ^2^8-hour report was required.^' 

Audit staff determine4;ma^Qf'aid-nQLfi^'24-hour reports, as required for 

indeTC^eht i^en^tures. lQtalirii^$-29 J25. 

S^^erim Audi^Report A'^udif Division Recommendation 

: staff discussed this matter at the exit conference and provided HDP 

represen|atiyes a schedule of 24-hour repoits that were not filed. HDP 

The 

represent b^tated^ey would review the schedule. 

Absent docummt^ioh and evidence that apparent independent expenditures totaling 

$30,148 did not ^-bquire reporting as independent expenditures (per Part A. above). 

^ Final Audit Report of the Commission on the Democratic Executive Committee of Florida (2008 cycle), 

Report of the Audit Division on California State Republican Party (1998 cycle), Report of the Audit 

Division on Missouri Democratic State Committee (1998 cycle). 

This amount consists of the coordinated party expenditure limit (2012 Senate General Election for 

Hawaii), S97,600, and SS,000 in coordinated spending authority transferred by DSCC. 

The date the expenditure is publicly distributed serves as the date that the independent expenditure is 

made for purposes of the additional 24/48-hour report filing requirement. In the absence of a known 

date for public dissemination, the Audit staff used the invoice date or date of incurrence to determine if 

a 24/48-hour report was required. 
28 

the lAR recommended that HDP provide any comments it deems necessary with 

respect to the 24-hour reports that were not filed. 

3. Committee Response to Interim Audit Report 

In response to the lAR recommendation, Counsel provided no additional comments. 

However, since the expenditures noted above in Part A. were coordinated 

communications and not independent expenditures, no 24-hour reports were required. 

I Finding 7. Allocation of Expenditures 

Summary 

During audit fieldwork, the review of disbursements made 

federal accounts identified an apparent non-federal o\ 

of $82,722. In response to the lAR recommendation, HI 

submitted additional documentation for certain expen^tij 

documentation, the Audit staff revised its qalculati^ anc 

account did not overfund the federal account. 

le federal and non-

^activity in the amount 

reports wd 

Basedvoh\&e new 

includes ^nbn-federal 

Legal Standard 

A. Paying for Allocable Expenses. The Commissidhsrelgulations offer party committees 

two ways to pay for allocable, sharedsfiBderal/non-fedem^xpenses. 

• they may pay the entire amountVpf-^shared expeiwb^TO^the federal account 

and transfer funds from the non-firaerdhacc&unt to the J^eral accotmt to cover the 

non-federal share of that expenses\ 

They may estaW4|]£^eparate, feder^Cdllocatior^atTcount into which the 

committee deposits fund^from both it^federal and non-federal accoimts solely 

for the 

B. 

ayin»the allocable\x^ses. 11 CFR § 106.7(b). 

Transfersr-GenCTally>^(!(fitical-CQmffiWfe ^ 

,acCOunt^o It 

lor paying foi 

5(a(l)(i) and 

may not transfer funds from its non-

.^account, ejccept when the committee follows specific 

ieral/non-federal election activity. 11 CFR 

C. Reportme^loeable Expenses. A political committee that allocates 

federal/nonfi^bral expires must report each disbursement it makes from its federal 

account (or s^^atC'dltocation account) to pay for a shared federal/non-federal 

expense. Comminees report these kinds of disbursements on Schedule H4 (Joint 

Federal/Non-fedml Activity Schedule). 11 CFR §104.17(b)(3). 

D. Alloeation Ratio for Administrative & Generic Voter Drive Costs. State and local 

party committees must allocate their administrative expenses and generic voter drive 

costs dependent upon which federal offices appear on the ballot for the election year. 

The minimum percentage of federal funds would be at least: 

• 36 percent if both a Presidential candidate and a Senate candidate appear on the 

ballot; 
29 

• 28 percent if a Presidential candidate but not a Senate candidate appears on the 

ballot; 

• 21 percent if a Senate candidate, but not a Presidential candidate, appears on the 

ballot; and, 

• 15 percent if neither a Presidential nor a Senate candidate appears on the ballot. 

11 CFR§ 106.7(d)(2) and (3). 

E. Salaries and Wages. Committees must keep a monthly log of the percentage of time 

each employee spends in connection with a Federal election. Employees who spend 

25 percent or less of their compensated time in a given month on Federal election 

activity or on activities in connection with a Federal electiong^W either be paid only 

from the Federal account or have their salaries allocated tys^lmadmnistrative cost. 11 

CFR §106.7(d)(l). 

(FEA) is a 

strict or loba^arty committees 

As a getKE^'ti^FEA 

may be us^ for FEA. 

s before a regularly scheduled 

activity conducted in 

office appears on the 

F. Definition of Federal Election Activity. Fede^ 

specifically defined term of art for activity b 

that triggers special payment and reporting^feitiuiremi 

must be paid for with federal funds. No.n'on^ 

There are four types of FEA: 

• Voter registration activity during the period l2i 

federal election including the^lee^n day itself; 

• Voter identification, get-out-thcrvote and generic 

connection with an election in vdiich a-c^idate for 

ballot; / 

• A public communicatton that refers^(^'clearlyl^ntified candidate for federal 

office and that'pfomotes,\ttacks, supports or opposes (PASOs) a candidate for 

that office,^Th^qommunieation need nbt wpressly advocate the election or 

defeat of the fedCTal^candi'date to qualify^as FEA; and 

• Ser^es^Kmde^dufin'g^ny-giyeh-caiendar month by an employee of a state, 

di^ct^rJqc^part^prnmittee who spends more than 25 percent of his or her 

s^pensate^in^urii^g.^tha{^r^nth in activities in connection with a federal 

qtion, includmg feA men^Med above. 11 CFR § 100.24(b). 

G. Required founts for Federal Election Activity. Each State, district, and local 

party orgwiz^ion or CjE^mittee that has receipts or makes disbursements for Federal 

election activWban.r@fablish two separate accounts in depositories as follows: One 

or more Federal acpmints, and an account that must function as both a Non-Federal 

account and a Levin account. If such an account is used, the State, district, and local 

party must demonstrate through a reasonable accounting method approved by the 

Commission that whenever such organization makes a disbursement for activities 

undertaken pursuant to 11 CFR 300.32(b), that organization had received sufficient 

contributions or Levin funds to make such disbursement. 11 CFR §300.30(c)(3). 

H. Receipt of Levin Funds. Levin funds expended or disbursed by any state committee 

must be raised solely by the committee that expends or disburses them. Each 

donation must be lawful under the laws of the state in which the committee is 

organized and the funds solicited must not aggregate more than $10,000 in a calendar 
30 

I. 

year. Consequently, fiinds from national party committees, other state, district and 

local committees, and from federal candidates or officeholders, may not be accepted 

as Levin funds. 11 CFR §300.31. 

Disbursements of Levin Funds. A State, district, or local committee of a political 

party may spend Levin funds on the following types of activity: 

• Voter registration activity during the period that begins on the date that is 120 

days before the date a regularly scheduled Federal election is held and ends on the 

date of the election; 

• Voter identification, get-out-the-vote activity, or generic campaign activity 

conducted in connection with an election in which a candidate for Federal office 

appears on the ballot (regardless of whether a candii 

also appears on the ballot); 

The Federal election activity for which the disbui 

a clearly identified candidate for Federal office] 

The disbursement must not pay for any pi 

cable, or satellite communication, othe^an a co 

a clearly identified candidate for State^r^'lmal offn 

(c). 

J. Reporting Federal Election Acti; 

combined annual receipts and disbi^m 

$5,000 or more during the calendar 

disbursements of federal funds and Li 

(b)(2). 

K. Contents of 

• the amount ofl 

reporting,period; 

or local office 

must riot refer to 

iting, 

solely to 

i)(l) and 

local party committee's 

activity (FEA) total 

disclose receipts and 

A. 11 CFR §300.36 

Reports. Each report i^ust disclose: 

S^-^n-hand .fo^.evin^^^ at the beginning and end of the 

^.fl^^reo^pts for the reporting period and the calendar 

total amount^-Levin Vqi^^isbursements for the reporting period and the 

r year; andvi \ V 

tionsjihat require itemization on Schedule L-A (Itemized Receipts 

of Levuf^^s) o^Schedule L-B (Itemized Disbursements of Levin Funds). 11 

CFR§3f ^ • 

Facts and Anali 

A. Facts 

During audit fieldwork, the review of disbursements made from the federal and nonfederal accounts identified an apparent non-federal overfunding of activity in the 

amount of $82,722. 

1. Expenses reported as allocated on Schedules H4. The Audit staff calculated 

the non-federal share of expenditures required to be disclosed on Schedules H4 

and compared that to the amount transferred from the non-federal account for the 
31 

period between 2011 and 2012. The non-federal portion of shared activity for this 

period was $110,092. However, the non-federal account transferred a net amount 

of $160,083, resulting in an overfunding of allocable expenses totaling $49,991. 

a) Below is a breakdown of the Audit staffs calculation of overfunding of 

allocable expenses totaling $49,991. The following expenses were disclosed 

on Schedule H4 but, based on available documentation, were not allocable 

and should have been paid with 100 percent federal funds: 

i) Payroll and Associated Costs: HDP paid expenses from a federal account 

but disclosed these as allocable administrative expeh^s on Schedule H4. 

HDP did not provide monthly logs, timesheetSw^>'^%vits demonstrating 

that these costs were solely non-federal or ajl^ab^ expenses (see Finding 

5). 

ii) ^paidexf from a federal 

iod, 

on of 

Generic Voter Drive (GVD) Expen^^ ^ ^ 

account that appeared to be GOpV^activity during the 

but disclosed these as allocabl,^x^nses oi^S^hedule H4. 

these expenses were disclosed as aliq^ble^Ge^ic Voter Di^ve expenses 

on Schedule H4. The remaining were^scfpsed as shared administrative 

expenses on Schedule^4. Based upon the^i^s and purpose of the 

disbursements and the linjj^^ocumentatiortpFOvided. it appears these 

disbursements should h^^^ee^aid with lOO^roi^nt federal funds and 

not disclosed as shared exp^-""- ^2 

iii) MisceH^eous^Expenses. HD^disclosed^xpenses on Schedule H4 that 

it^sufficiently documented to allow the Audit staff to determine 

wheti^r^hey could be shared. Ii^^ded in this total were disbursements 

for rent ^(^iltilities.''The-dQ.cumentation to support these disbursements 

^ls*insiufficiept tp d^rmine./if these expenses were made to support the 

offide^ temporary campaign office locations. 

^ses paid fi^nr.the noii^federal account. HDP paid certain expenses 

im the non-lfederal account that appeared to represent 100 percent 

vity or mlocable activity that should have been disclosed on Schedules 

H4, resulti^>ma^verfunding of expenses totaling $32,731. 

Below isjK'breakdown of the Audit staffs calculation of overfunding of 

expenses paid from the non-federal account totaling $32,731. Based on 

available documentation, these expenses should have been paid with 100 

percent federal funds or allocated on Schedules H4: 

di 

For the 2012 election cycle, a candidate for federal office appeared on the ballot in the state of Hawaii. 

For HDP, the FEA Voter ID, Generic Campaign Activity and GOTV period was June S, 2012 through 

November 6,2012. Further, the FEA voter registration period was November 8,2011 through March 

13,2012 and April 13,2012 through November 6,2012. 
32 

i) Federal Election Activity Expenses. HDP paid expenses totaling $30,576 

from its non-federal account that appeared to be PEA Type II (GOTV) 

activity that should have been paid Avith 100% federal funds. Based on 

available documentation, it appeared these expenses pertained to various 

GOTV rallies. These costs included consulting services, facility and 

. equipment rentals, food and beverages, entertainment and transportation 

expenses. 

ii) Miscellaneous Administrative Expenses. HDP paid expenses from its 

non-federal account that, based on available documentation, appeared to 

be expenses that should have been allocated betweefhjhe federsd and nonfederal accounts. The federal share of these expdme^taled $2,155. 

These expenses pertained to office rent, baiyfi^(^(»,^ofIice vehicle repairs 

and accounting services. 

B. Interim Audit Report & Audit Division Re» ition 

The Audit staff discussed this matter at the exiys^ference and provic 

representatives schedules identifying the tran^^i^ns causl^the non-fe 

overfrmding. HDP representatives stated they getting thrqiHbrmer staff 

to sign payroll affidavits for disbursements disclosed^as aflocable administrative expenses 

on Schedule H4. 

The lAR recommended that HDP provic 

expenditures above did not cause an ove 

$82,722 ($49,991 + $3yj.-l^.^bsent sue! 

reimburse the non-fedefahi6C(^.t $82,7221 

Schedule D as a del 

tion di 

iding/fr^>>the 

snce, 

(disclose tl 

ig that the 

[-federal accoimt of 

recommended that HDP 

non-federal overfunding on 

me available to satisfy the obligation. 

C. CommitteeResponsqfbJiiterriirAudj.t, 

In responsp^^!^e[pyi recoiranendaTidnr-H^ provided a declaration that stated several 

staff payMfpaymSn^^ere mad^tp individuals who worked less than 25% percent of 

tim^^^given month on activities inx6nnection with federal elections and federal 

election^i^ty. The Ai^it^staff ^knowledges that these payroll expenditures are 

allocable ^Schedule H4, und adjusted the calculation for overfunding accordingly. 

HDP also providedVded^^tion that asserted that several expenses disallowed by the 

lAR were in fact ord n^' sperating costs. The Audit staff acknowledges that these 

expenses are allocabje^n Schedule H4, and adjusted the calculation for overfunding 

accordingly. 

In addition, HDP filed amended disclosure reports in response to the lAR 

recommendation that moved $38,251 in federal election activity expenses disclosed on 

Schedule H4 to Schedule H6 (allocated Levin & federal expenses). HDP provided 

Schedules L for Levin activity and have moved the necessary portion of allocation 

transfers to Schedule H5 so that these activities are properly disclosed as allocable federal 

election activity. The Audit staff acknowledges that the expenditures moved from 

Schedule H4 are expenditures for federal election activity allocable on Schedule H6, and 

adjusted the calculation for overfunding accordingly. 
33 

Finally, HDP objected to the inclusion of non-federal bank charges as allocable expenses. 

The Audit staff agrees that the non-federal bank charges are not an allocable 

administrative expense, and adjusted the calculation for overfimding accordingly. 

Based on the documentation provided in response to the lAR recommendation, the Audit 

revised its funding analysis and concludes the non-federal account did not overfimd the 

federal account. 
FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

MEMORANDUM 

TO: OFFICE OF THE COMMISSION SECRETARY 

FROM: STAFF DIRECTOR 

DATE: 11/20/2017 

SUBJECT: Audit Division Recommendation Memorandum on the 

Hawaii Democratic Party (A13-071 

AGENDA 

The attached document Is submitted as AGENDA BACKUP PAPER for the 

Commission Meeting of : 

OPEN SESSION • CLOSED SESSION • 

NOTE: This document has been cleared by the Office of the Staff Director for the above named 

Commission Meeting. 

CIRCULATIONS 

24-Hour Tally Vote • 

Sensitive • 

Non-Sensitive • 

Weekiy Taliy Vote IEI 

Sensitive • 

Non-Sensitive IEI 

24-Hour No Objection • 

Sensitive • 

Non-Sensitive • 

information • 

Sensitive • 

Non-Sensitive • 

24-Hour No Objection 

Personnei • 

DISTRIBUTION 

Commissioners, OGC (3), Staff Director, 

Public Disclosure & Press 

Compliance 

Audit Matters 

Non-Filers 

No-Objection Personnei 

Commissioners Only 

Miscellaneous 

Other (see distribution below) 

• 

• 

lEI 

• 

• 

• 

• 

• 
Date & Time Transmitted: 11 -20-2017 

TO: THE COMMISSIONERS 

FROM: OFFICE OF THE STAFF DIRECTOR 

SUBJECT: AUDIT DIVISION RECOMMENDATION MEMORANDUM ON THE 

HAWAII DEMOCRATIC PARTY (A13-07) 

DEADLINE: 

Sunshine Recommendation 

A. X Open Session B. Closed Session 

. Discussion would involve compliance matters which would be confidential 

under 52 U.S.C. §30109. (II CFR §2.4(a)(l) and (2)) 

. Matter relates solely to the Commission's internal personnel decisions, or 

internal rules and practices. (11 CFR §2.4(b)(I)) 

Report contains privileged or confidential financial or commercial 

information. (11 CFR §2.4(b)(2)) 

. Discussion would involve the consideration of a proceeding of a formal . 

nature by the Commission to a specific person or the formal censure of a 

person. (11 CFR §2.4(b)(3)) 

Disclosure would constitute a clearly unwarranted invasion of privacy. 

(11 CFR §2.4(b)(4)) 

. Discussion involves investigatory records complied for law enforcement 

purposes, and production would disclosure investigative techniques. 

(11 CFR §2.4(b)(5)) 

. Premature disclosure would be likely to have considerable adverse effect on 

the implementation of a proposed Commission action. (11 CFR §2.4(b)(6)) 

. Matter specifically concerns the Commission's participation in a civil action 

or proceeding, or an arbitration. (I I CFR §2.4(b)(7)) 

for the Staff Director