& 

FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

ZCi50EC-7 P^*:3- PU 

December 7,2015 

MEMORANDUM 

To: 

Through: 

From: 

The Commission 

Alee Palmer /Q 

Staff Director ^ 

By: 

Subject: 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister~<!K)k 

Assistant Staff Director 

Audit Division 

Douglas Kodish j^) 

Audit Manager 

Paula Nurthen 

Lead Auditor 

Audit Division Recommendation Memorandum on the Utah State 

Democratic Committee (IJSDC) (A13-10) 

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

the Audit staff presents its recommendations below and discusses the findings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. 

Finding 1. Misstatement of Fioaoeial Aetivity 

The Audit staff determined that, for 2011, USDC understated its opening cash by 

$17,885 and overstated its receipts and ending cash by $92,203 and $74,545, 

respectively. For 2012, only the opening and ending cash were mis.stated. 

Opening cash was overstated by $74,545 and ending cash was overstated by 

$75,866. Subsequent to audit notification, USDC amended its reports, which 

materially corrected the opening cash for 2011. In response to the Interim Audit 

Report (lAR) recommendation and the DFAR, USDC agreed that transfers were 

reported but not made through its bank accounts (and only accounted for on its 

books), but .stated their use of a sweep account precluded them from making 

effective transfers. USDC requested a reduction in the misstatement amount of 

$90,439, the amount of its reported transfers for 2011. 
The Audit stafT recommends the Commission find that USDC misstated its 

financial activity for the calendar year 2011 and its opening and ending cash 

balances for 2012. 

Finding 2. Recordkeeping for Employees 

For the period covered by the audit, USDC did not maintain monthly payroll logs 

for some of its payroll, 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 42 payroll transactions totaling $62,135, for which monthly 

payroll logs were missing or incomplete. This consisted entirely of payroll which 

was allocated between federal and non-federal funds. In response to the lAR 

recommendation, USDC stated that it has procedures in place [that were 

implemented.in 2012] to ensure that payroll logs are maintained to track the 

amount of time employees spent on federal activities. USDC did not provide any 

additional comments in response to the DFAR. 

The Audit stalT recommends the Commission find that USDC failed to maintain 

monthly payroll logs to document the time employees spent on federal election 

activity, totaling $62,135. 

Finding 3. Improper Bank Account Structure 

USDC maintained a bank account in which all funds, including both federal and 

non-federal, were temporarily transferred from linked subaccounts (federal and 

non-federal) to a parent account that served as a temporary holding account for all 

USDC funds. This account structure was maintained for ten months in 2011 and 

then its use discontinued. The Audit staff determined the account was not a 

federal account in accordance with 11 CFR §102.5(a)(l)(i), which provides for the 

permissible account structure pertaining to federal and non-federal activity. In 

response to the JAR recommendation, USDC stated that it had no additional 

comments regarding this matter. USDC did not file an additional response to the 

DFAR. 

The Audit staff recommends the Commission find that USDC used an improper 

bank account structure during 2011. 

Finding 4. Receipt of Levin Fund Donations that Exceed the Limit 

The Audit staff identified two donations to the Levin Fund that e.xceeded the 

donation limitation by $12,000. In response to the lAR recommendation, USDC 

filed amended reports disclosing different Levin contributors to replace those 

identified as e.xcessive, but did not provide evidence to demonstrate that total 

Levin funds were sufficient and that the substituted Levin donors were Levin 

eligible. However, in response to the DFAR, USDC stated that it used the last-in, 

first-out accounting method and provided the accounting documentation requested 

by the Audit staff. The Audit staff verified USDC's Levin accounting and 

determined that USDC did not exceed the Levin Donation Limit. 

The Audit staff recommends the Commission find that USDC did not exceed the 

Levin Fund limit. 
Finding S. Receipt of Contributions that Exceed Limits 

USDC accepted contributions from two political action committees that exceeded 

the limitation by $8,S00. Both of the excessive contributions were refunded; 

however, the refunds were not made timely. In response to the lAR 

recommendation, USDC stated that it had no additional comments regarding this 

matter. USDC did not provide any additional comments in response to the DFAR. 

The Audit staff recommends the Commission find that USDC accepted 

contributions that exceeded the limitation by $8,500 and the funds were untimely 

refunded. 

I'hc Committee did not request an audit hearing. 

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 be 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 Paula Nurthen or Douglas Kodish at 694-

1200. 

Attachment: 

- Draft Final Audit Report of the Audit Division on the Utah State Democratic 

Committee 

cc: Onice of General Counsel 
iDraft Final Audit Report of the 

Audit Division on the Utah State 

Democratic Committee 

(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 y 

appears not to havpi^et 

the threshold ' 

requircmentsfoic. 

substantial ];:b¥fp^ce 

with the-Acj;' The audit. 

determines Whether the , 

committee comjalied with . 

the limitations, 

prohibitions and 

disclosure requirements- ' 

of the Act. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Committee (p. 3) 

The Utah State Democratic Committee is a state party committee 

headquartered in Salt Lake City, Utah. For more information, see 

the chart on the Committee Organization, p. 3. 

.jA;, 

Financial-'^etivity (p. 4) 

• Receipts"--'; 

o .Co'ritribiitions frqiQ Individuals 

o, •j-ippntributions froriiX)ther Political 

G&Ojmitt^ (PACs) 'iVi. 

o Tra^ei^^rom AtTiIiaie'^^er Party 

'••w.... Comrii'i^^s ' 

'r^.M.,Transfers;%9,m Nonfederal Accounts 

Recci^::. m'-

Disbursement 

o Opsiating Expenditures 

- b-V.\:fedfSfal Election Activity 

•••••v., o "^brdinated Party Expenditures 

o.. Other Disbursements 

'j-b Transfers to Affiliated/Other Party 

Committees 

Total Disbursements 

• Levin Reeeipts 

• Levin Disbursements 

S 448,066 

206,626 

771,602 

550,073 

119,872 

S 2,096,239 

S 1,119,344 

709,716 

134,156 

67,902 

65,000 

S 2,096,118 

S104,S00 

S103,S00 

Findings and Recommendations (p. 5) 

• Misstatement of Financial Activity (Finding 1) 

• Recordkeeping for Employees (Finding 2) 

• Improper Bank Account Structure (Finding 3) 

• Receipt of Levin Fund Donations that Exceed the Limit (Finding 4) 

• Receipt of Contributions that Exceed Limits (Finding 5) 

' 52U.S.C.§30III(b>. 
Draft Final Audit Report of the 

Audit Division on the Utah 

State Democratic Committee 

(January 1, 2011 - December 31, 2012) 

•• TV 

%. \ " 
Table of Contents 

Finding 5. Receipt of Contribution^4hat Exc^e^. L|pits 

M', it'"' 

\ •. •:; • --7 ' •:-

Page 

Part 1. Background 

Authority for Audit 1 

Scope of Audit 1 

Commission Guidance 1 

Part II. Overview of Committee 

Committee Organization 3 

Overview of Financial Activity 4 

Part III. Summaries 

Findings and Recommendations S 

'••Impart IV. Findings and Recommendations 

Finding!. Misstatement of FinanctE^IActiyity 

Finding 2. Recordkeeping for Empldi^es 

Finding 3. Improper Bank Account Stfttcttjre 11 

Finding 4. Receipt of Levirr-^^nd DonatidHSj.that Exceed the Limit 13 

Findino S. Receint of Contributiiims^that Exceed.Limits IS 

7 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Utah State Democratic Committee (USDC), 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 S2 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 under S2 U.S.C. 

§30104. Prior to conducting any audit under this subsection, the Commission must perform an 

internal review of reports filed by selected committees to determine if the reports filed by a 

particular committee meet the threshold requirements for substantial compliance with the Act. 

52 U.S.C. §30111(b). / 

Scope of Audit 

Following Commission-approved procedures, the':Xudil st^^ evaluated various risk factors and 

as a result, this audit examined: •». 

1. the receipt of excessive contributions; 

2. the receipt of contributions from.prohibited'^Qtif'ceisi3. the disclosure of individual con'tnhtjj.ors' occiip^tion and name of employer; 

4. the disclosure of disbursements, dbbfs jatijl obligatbps; 

5. the disclosure of expenscs^;?|located betvytfqhTederlijihd non-federal accounts; 

6. the consistency betjween reported figuteis and b'wifc records; 

7. the completeness of records; •; 

8. the disclosure pf.independent-^;pendiiure$^^ 

9. other comjiiittee oper-aiionfr^ppeSS^^ review. 

Commissio'd^Guidai^^e ' 

Hrr:, J. 

Request for Early'bomni^sion Consideration of a Legal Question 

Pursuant to the Commissioii's "Policy Statement Establishing a Program for Requesting 

Consideration of Legal Questions by the Commission," several sute party committees 

unaffiliated with USDC requested early consideration of a legal question raised during audits 

covering the 2010 election cycle. Specifically, the Commission addressed whether monthly time 

logs under 11 CFR § 106.7(d)(1) were required for employees paid with 100 percent federal 

funds. 

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

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

prosecutorial discretion, however, the Commission decided it would 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 

USDC representatives of the payroll log requirement and of 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 USDC-employees paid with 100 percent federal funds and 

reported as such. 

f.. " 

• • Jt-. ...V 

-rv" •• 

...-.i' • .-y-.s. 

V;.' 

• ••• • • ; . 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration November 16.1978 

• Audit Coverage January 1, 2011 - December 31,2012 

Headquarters Salt Lake City, Utah 

Bank Information •<;. • Bank Depositories Two 

• Bank Accounts jS.ix federal and four non-federal 

Treasurer "•=!| . 

• Treasurer When Audit Was Conducticij ; ••• BriiriiKing: 9/20/13-3/16/15 

Peter (ZoiToon; 3/17/15 - Present 

• Treasurer During Period Coveriid by Audit 

•• 'rf . 

Kathleen Snyder: 1/01/11 - 10/10/11 

Robert Miller: lO/l 1/11 - 12,'31/12 

Management Information,.. 'O.:-.... 'f. •f^v 

• Attended Commissiont^aSSpaign Finance SSfhinar - ^es 

• Who Handled AcdSd^ting and:Recordkeeping ' 

Tasks % 

Paid Staff 

• "i'/s 

•"V 

^5-
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand (Si January 1,2011 S 82,729 

Receipts 

o Contributions from Individuals 448.066 

o Contributions from Other Political Committees 

(PACs) 206,626 

o Transfers from Affiliated/Other Party Committees 771,602 

o Transfers from Nonfederal Accounts 550,073 

o Other Receipts 119,872 

Total Receipts .i v • 2,096,239 

Disbursements ..- V 

o OperatinR Expenditures • 1,119,344 

o Federal Election Activity .. i.-'. 709,716 

o Coordinated Party Expenditures 134,156 

o Other Disbursements 3^ 67,902 

o Transfers to Affiliated/Other Party -Committees' 1%, 65,000 

Total Disbursements V 2,096,118 

Cash-on-hand ^ December.31,2012'' "i! S 82.850 

Levin Cash-on-hand^:May 8t:^012 ^ SO 

Total Levin Receipts 3 104,500 

Total Levin Disbursements ' ^' ; ' • .••••' 103.500 

Levin Ca'shrOnihand @''^Mni1ier3lV20il 

^ "j ' s. 

SI,000 

•• • : •• y 

•? 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit Tieldwork, a comparison of USDC's reported financial activity with its bank 

records found that, for 2011, USDC understated its opening cash by $17,885 and 

overstated its receipts and ending cash by $92,203 and $74,545, respectively. For 2012, 

only the opening and ending cash were misstated. Opening cash was overstated by 

$74,545 and ending cash was overstated by $75,866. Subsequent to audit notification, 

USDC amended its reports, which materially coirffctlBd the opening cash for 2011. In 

response to the Interim Audit Report recomme'i^ation, USDC stated that it disagrees with 

the dollar amount of the receipts misstatement, $92{|03, and requests that the finding be 

reduced by $90,439, the amount of its ovef rq^orted ttonsfers. (For more detail, see p. 7.) 

Finding 2. Recordkeepih^j^r Employe'^ 

During audit fieldwork, the Audit staff foun4.:t.Kat'USDC did nbt maintain monthly 

payroll logs for some of its payrdllf^s requirCd;'tp document the percentage of time each 

employee spent in connection with '^ifei^ral election. For 2011 and 2012, the Audit staff 

identified 42 payroll trajijsagtions t(Jtalinf46?,135,'feriwhi monthly payroll logs were 

missing or incomplete Ti?i^;cnnsisted/e'rttirel|j^jp^^ which was allocated between 

federal and non-fe^i»aMunds:'c In response to thc'interim Audit Report recommendation, 

USDC stated |,h.^,it no^:hasJ^£edures Pn,.pljice to ensure that payroll logs are 

maintained tb traefc-t^e airiQiSm wtbh!e;C spent on federal activities. (For more 

detail, seeipi-.9.) 

Finding 3;^mpro^]^r Bank Account Structure 

USDC maintained a\bank amount in which all funds, including both federal and nonfederal, were temporarrl.}|(. transferred from linked subaccounts (federal and non-federal) 

to a parent account that.served as a temporary holding account for all USDC funds. This 

account structure wa.s maintained for ten months in 2011. The Audit staff determined the 

account was not a federal account in accordance with 11 CFR §102.5(a)(l)(i), which 

provides for the permissible account structure pertaining to federal and non-federal 

activity. Upon review of the account activity, the Audit staff concluded that USDC did 

not improperly use non-federal funds to pay for federal activity. In response to the 

Interim Audit Report recommendation, USDC stated that it has no additional comments 

regarding this matter. (For more detail, see p. 11.) 

Finding 4. Receipt of Levin Fund Donations that Exceed the 

Limit 

The Audit staff identified two donations to the Levin Fund that exceeded the donation 

limitation by $12,000. In response to the Interim Audit Report recommendation, USDC 

filed amended reports disclosing different contributors of Levin funds to replace those the 
Audit staff Identified as making excessive Levin contributions. USDC did not 

demonstrate through a reasonable accounting method that it had sufficient Levin-eligible 

funds to make the Levin disbursements at the time when it spent the monies acquired 

from the two excessive donations on Levin activities and it did not demonstrate that the 

most recently disclosed Levin donations were, in fact, Lcvin-cligible. (For more detail, 

see p. 13.) 

Finding 5. Receipt of Contributions that Exceed Limits 

USDC accepted contributions from two political action committees that exceeded the 

limitation by S8,S00. Both of the excessive contributions were refunded; however, the 

refunds were not made timely. In response to the Interim Audit Report recommendation, 

USDC stated that it has no additional comments regarding this matter. (For more detail, see 

p. 15.) 

.;s • 

J, 

•V: .;V 

ia*-

.i. ^: 

•--r. 
7 

Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieidwork, a comparison of USDC's reported financial activity with its bank 

records found that, for 2011, USDC understated its opening cash by Si7,885 and 

overstated its receipts and ending cash by S92,203<%nd S74,S43, respectively. For 2012, 

only the ppening and ending cash were misstate|ij. Opening cash was overstated by 

$74,545 and ending cash was overstated Subsequent to audit notification, 

USDC amended its reports, which materia:H^?t.9rre^d.the opening cash for 2011. In 

response to the Interim Audit Report rMomrTiendatiori,^I^DC stated that it disagrees with 

the dollar amount of the receipts misstatement, S92,203,'ii^. requests that the finding be 

reduced by S90,439, the amount of its overreppited transfers>i.-i. :• • 

Legal Standard 

Contents of Reports. Each reportimusi discloseV':;-y;,.. . 

• the amount of cash-bhrhand at the t^eginhing an^ end of the reporting period; 

• the total amount of receipts for the ireportihgiip'eriod and for the calendar year; 

• the total amount of Wsbursements foc the reporting period and for the calendar year; 

and . ^ ^ ^ W 

• certai|t.transactionS^that rl^uire Ttbntiiution on Schedule A (Itemized Receipts) or 

Scheduli^iB (Itemiz^^isb%ments). 52 U.S.C. §30104(b)(1), (2), (3), (4) and (5). 

Facts and Aiiajlysls 

A. Facts 

During audit fieidwork, the Audit staff reconciled USDC's reported financial activity 

with its bank records for the calendar years 2011 and 2012 and identified misstatements 

for 2011 in its opening cash balance, receipts and ending cash balance. The following 

chart outlines the discrepancies between USDC's disclosure reports and its bank records, 

and the succeeding paragraphs explain, to the extent possible, the reasons for the 

misstatements. 
20II Committee Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance @ 

January 1, 2011 $64,844 $82,729^ $17,885 

Understated 

Receipts $477,497 $385,294 $92,203 

Overstated 

Disbursements $458,632 $458,859 $227 

Understated 

Ending Cash Balance 

aSi December 31. 2011 $83,709 $9,164 $74,545 

Overstated 

The overstatement of receipts resulted from the fojlowing: 

• Transfers from non-federal accounts ove^^drted 

• Fidelity investment account receipts ovdrlreported 

• Unexplained difference 

Net Overstatement of Receipts' 

V.;. 

f 

S (90,439) 

(2,170) 

4Q6 

3 (92.203) 

The misstatement of the opening cash balance i|v2011 resulted pMmarily from USDC not 

reporting the proper opening ba{ance and a^^jty ibr the Kardh Shepherd Fund.^ 

Subsequent to audit notification'^SJD.C ameria^i^Jts reports to adjust the opening cash 

balance for this fund, which materi|u!)^p,orrected 

misstatement of the egdmajash bafa^cel 

cash adjustment fqr^l^e K&<gkShephe^1 

detailed above 

ning cash balance for 2011. The 

;d primarily from the opening 

net overstatement of receipts 

For 2012, USDC'bversuted'ks o^enji^rca^ balance by S74,S4S and overstated its 

ending cask balance by;^7S,8'6iS; The overstatements resulted primarily from the 

discrepancies.'((uring calei^dar yea.n;2011 noted above. USDC has not filed amendments 

to correct the rrtlsstated casi^balarfces for 2012. 

B. Interim Audit Rcp^j;dl Audit Division Recommendation 

At the exit conference, thiif Audit staff explained the misstatements above, and other 

possible misstatements related to a bank account in which all funds, including both 

federal and non-federal funds, were temporarily transferred from linked subaccounts 

(federal and non-federal) to a parent account that served as a temporary holding account 

for all USDC funds. Schedules of the misstatements were provided to USDC 

representatives and Counsel. Counsel stated that they would review the schedules and 

The opening cash balance was adjusted to include a federal cash balance from USDC's parent account 

discussed in Finding 3. 

The Karen Shepherd Fund consisted of amounts originally donated from the Karen Shepherd for 

Congress Committee in 199S. During 2011, total receipts were Si,ICQ and there were no disbursements. 

The opening cash balance at the beginning of 2011 was SSS,620 and the closing balance at the end of 

2011 was $36,720. These balances were included in the amendments filed by USDC after notification of 

the audit. It is also noted that USDC closed the account for the Karen Shepherd Fund in March 

2014. 
might seek Commission consideration regarding the inclusion of the parent account as a 

federal account. Subsequently, USDC filed a Request for Commission Consideration of 

a Legal Question; however, the matter was withdrawn after the Audit staff, in further 

consultation with the Office of General Counsel, decided not to include activity from the 

parent account as part of the misstatement finding, since USDC did not use the parent 

account to pay any of its expenses and it was not used as a Federal allocation account.* 

The Interim Audit Report recommended that USDC Hie amended disclosure reports to 

correct the remaining overstatements of ending cash and receipts for 2011 and the 

misstated cash balances for 2012. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, USDC said it disagrees that 

receipts were overstated by 192,203 and requests th^t this amount be reduced by S90,439, 

the amount of over reported H3 transfers. US^ cdntqnds that if it had made electronic 

transfers (or written checks) from its holdin&acc|.^t and deposited them into its Federal 

account, the funds would have been return^-tp its'^^rent account by automatic transfers, 

so in effect, no transfers could have be,eft lifia^eV The^dfore, it recorded the transfers on its 

books and reported them as such, . 

The Audit staff maintains that USDC overstated tfie amount oiftransfers from its nonfederal account and continues to rbpommend tfiat USDC amend its reports to reflect the 

amount of funds that were actuall^.trahsferred beW/ecn the accounts. Such an adjustment 

would be consistent with;thc reporting ofxither transfers between these accounts which 

USDC properly repotted dii^jng the aiidit penoidi-^' 

Finding. |gr Employees 

Summary;;;'. 

During audit fl&ldwork, tif^-Audit^tisiir found that USDC did not maintain monthly 

payroll logs for spine of its'payroll, as required, to document the percentage of time each 

employee spent in c'd^ection with a federal election. For 2011 and 2012, the Audit staff 

identified 42 payroll tfansatitions totaling $62,135, for which monthly payroll logs were 

missing or incomplete. ' His consisted entirely of payroll which was allocated between 

federal and non-federal funds. In response to the Interim Audit Report recommendation, 

USDC stated that it now has procedures in place to ensure that payroll logs are 

maintained to track the amount of time employees spent on federal activities. 

Legal Standard 

Maintenance of Monthly Logs. Committees must keep a monthly log of the percentage 

of time each employee spends in connection with a federal election. Allocations of 

salaries, wages, and fringe benefits are to be undertaken as follows: 

• employees who spend 25 percent or less of their compensated time in a given 

month on federal election activities must be paid either from the federal account 

or have their pay allocated as administrative costs; 

* The parent account is the subject of Finding 3- Improper Bank Account Structure. 
10 

• employees who spend more than 25 percent of their compensated time in a given 

month on federal election activities must be paid only from a federal account; and 

'• employees who spend none of their compensated time in a given month on federal 

election activities may be paid entirely with funds that comply with State law. 11 

CFR§l06.7(dXl). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reviewed disbursements for payroll. USDC was 

required to maintain monthly logs or equivalent records to document the percentage of 

time each employee spent in connection with a federal election for $358,530 in payroll. 

These logs are required to document the proper allocation of federal and non-federal 

funds used to pay employee salaries and wages. F.or some employee time records, USDC 

properly utilized a'payroll log to record the tirne-i^pent on federal election activity. 

However, some payroll logs were either mis.siiig''cr^.werc not complete for payroll totaling 

$62,135.^ The total of $62,135 consisted:eAtiiely o£payroll reported on Schedules H4 

and paid with an allocation of federal a^'d' n6n-feder^'%Qds.' 

B. Interim Audit Report & Audit DmSibji ^^ommend^»^.R' 

At the exit conference and during audit ficfdWork, the Audit sMf discussed the payroll 

recordkeeping issue with USDC'-^l^sentativcsSJhe representatives noted that most of 

the missing records were for three^ndVfti^uals, onS-iqf^^yhom is now deceased. The 

representatives statcd;.tH(Sti;?gtarting ii^2^Pi^SpC jdiSpted new employee policies and 

procedures that required afl'dimployeeSijto sign ti^esheets that tracked the percentage of 

time spent on federal'bl^ctioi^ctivity. 'A sample of the new timesheet and a copy of the 

policies andj^p^edures wigr^p^^^ to-tl^'Audit staff. The Audit staff found the 

planned changes's^icient iferztrack^^^^ of time spent by USDC employees on 

federal diS^ion activity.;;. " 

For USDC empioyees that ^cre paid with an allocation of federal and non-federal funds 

for which payroll logs,were|^issing or incomplete, the Interim Audit Report 

recommended that USDCK' 

• provide evidence that the missing or incomplete monthly time logs were 

maintained to document the percentage of time an employee spent in connection 

with a federal election; and 

•. continue to maintain payroll logs according to the policy provided to the-Audit 

staff. 

s 

6 

This lotBl 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 

Lcgai Question, Page 1). Payroll amounts arc stated net of payroll taxes and benefits. 

All payroll described in this finding, S3S8,S30, was required to be aliocated between federal and nonfederal activity. 
C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, USDC stated that it now has 

procedures in place to ensure that payroll logs are maintained to track the amount of time 

employees spent on federal activities. The Audit staff concludes that USDC did not 

maintain monthly logs for payroll totaling S62,I3S. 

Finding 3. Improper Bank Account Structure 

Summary 

USDC maintained a bank account in which all funds, including both federal and nonfederal, were temporarily transferred from linked subaccounts (fjederal and non-federal) 

to a parent account that served as a temporary holding account for all USDC funds. This 

account structure was maintained for ten months in 2011. The Audit staff determined the 

account was not a federal account in accordance !with 11 CFR §l02.S(a)(l)(i), which 

provides for the permissible account structure^^ainlng to federal and non-fbderal 

activity. Upon review of the account activity^'thle/y^udit staff concluded that USDC did 

not improperly use non-federal funds to pj'jtTbr fed'eial^activity. In response to the 

Interim Audit Report recommendatioij^^CjSDC stated has no additional comments 

regarding this matter. 

-'•ft .•••j;"''-..- o-;' 

Legal Standard 'rijr ' 

A. Accounts for Federal and ^dA^I'ederal^c^iyity. A party committee that finances 

political activity in connection with'&oth^federara'^nctn-i^deral elections may establish 

two accounts (federal ^andii^n-federaj) ^Ijpcate^Iiared expenses - expenses that 

simultaneously supj^ fc^rdl and noi|'i'Teder£f^j[^ion activity - between the two 

accounts. Alternatively^the committee "njay conduct both federal and non-federal activity 

from one baiiikac_j:ount, federal account. 11 CFR §l02.5(a)(l)(i). 

B. Fedeyaty. Non-Fcd.^ral ^-lii^ount. The federal account may contain only those funds 

that are perrhi^ible underi^^tj^e fed^l'election law. The non-federal account may contain 

funds that are ribf.permitte^under the federal law (but are legal under state law), such as 

contributions that cx.9eed the limits of the federal law and contributions from otherwise 

prohibited sources, suidhas corporations and labor organizations. 11 CFR §l02.S(a)(l)(i) 

and (a)(3). ; • ' 

C. Transfers. Generally, a political committee may not transfer funds from its nonfederal account to its federal account, except when the committee follows specific rules 

for paying for shared federal/non-federal election activity. 11 CFR §§l02.S(a)(l)(i) and 

106.5(g). 

D. Paying for Allocable Expenses. The Commission regulations offer party committees 

two ways to pay for allocable, shared-federal/non-federal expenses. 

• They may pay the entire amount of the shared expense from the federal account 

and transfer funds from the non-federal account to the federal account to cover the 

non-federal share of that expense; or 

• They may establish a separate allocation account into which the committee 

deposits funds from both its federal and non-federal accounts solely for the 
12 

purpose of paying the allocable expenses of shared federal/non-federal activities. 

II CFR§I06.5(g)(l)(i) and(ii)(A). 

E. Reporting Allocable Expenses. A political committee that allocates federal/nonfederal expenses must report each disbursement it makes from its federal account (or 

separate allocation account) to pay for a shared federal/non-federal expense. Committees 

report these kinds of disbursements on Schedule H-4. 11 CFR §104.17(b). 

Facts and Analysis 

A. Facts 

Prior to audit fieldwork, USDC informed the Audit staff that a previous Executive 

Director had maintained a bank account that included both federal and non-federal funds, 

obtained primarily through automatic transfers (sw^feps) from linked subaccounts (a 

federal bank account and a non-federal bank agdbijnt). The parent account also 

automatically transferred money back to the.si]b^$counts to pay for checks and other 

debits from the subaccounts. The effects pf^hese^iransfers, on a daily basis, were to 

maintain zero balances in these subacc^finf^^'-.-: 

USDC did not deposit funds directly ihto:''Uie p^pnt accoun^Ather than small credit card 

contributions, totaling S4],784.itand the afol^ni'dnlloned auto^Vic transfers. The account 

was not used to pay bills, excep^for credit card^fees associated with contributions that 

totaled S2,43S. All transfers for all.dealiejd costs Wm paid directly by check or internet 

transfer from a non-fede^.l.account-tp a f^j^r^l acc^jht'. The automatic sweeps function 

was discontinued i/ij^cto^j^of 2011 j-l^ereaRgrij.tne parent account served only as a 

credit card processlngi)iccouiffft .J?" 

1/'. -i 

Under 11 .CFK"§1'62.-^, comMittbes'thust US^ a federal account to deposit and pay all 

federal abtty|ty. Altematively;^^^^^ may choose to establish a special account, 

called an al(option acc^bt, soiii3y.|br the purpose of paying mixed federal/non federal 

expenses. FundV^re then tVilnsfeifed from the federal and nonfederal accounts into the 

allocation account^'^^ay fo]f!i|allocable activity. USDC's account structure as described 

above does not complj^^^j^hi^the regulations pursuant to 11 CFR §102.3. 

The commingling of fedbral and non-federal funds into the parent account increased the 

risk of.utilizing non-federal funds for federal activity. However, based on a funding 

analysis of all USDC's accounts, the Audit staff concluded that no overfunding of federal 

activity from non-federal accounts existed during the audit period. 

The parent account also received credit card contributions from both federal and non-federal 

donors, and was used to pay expenses relating to the processing fees for those credit card 

contributions. 

Other than the linked federal sub-account, USDC did not maintain a federal account for its daily 

operational activities. 

Of the contributions and fees mentioned in this paragraph, only S7,S17 was processed and deposited after 

October 2011; the fees totaled SI65. 
13 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed the improper account structure with 

USDC representatives and Counsel and it was subsequently presented as a finding. 

Counsel stated that USDC agreed that the account structure was improper and that its use 

had been discontinued. Subsequent to the exit conference, Counsel provided sufficient 

explanation to assure the Audit staff, in conjunction with their own analysis, that no 

overfunding of federal activity resulted from the commingling of federal and non-federal 

funds in the parent account. 

The Interim Audit Report recommended that USDC provide any additional information 

or written comments that it considered relevant to this matter. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, USDC provided no additional 

comments. The Audit staff concludes that USQC lised.an account structure for ten 

months during 2011 that was not in compliaric'e wth regulations pursuant to 11 CFR 

§102.5. ,4';, •'% 

Finding 4. Receipt of Levin Fund Dohlttions that Exceed 

the Limit 

Summary ^ _ • C;... 

The Audit staff identifie^jwo donatjohslt^he Levi^Jund that exceeded the donation 

limitation by $12,0i^fin^ponse t'&jl^e^^cimAdait Report recommendation, USDC 

filed amended rep§i%discl(^g diffc^nt cont^mors of Levin funds to replace those the 

Audit staff idcn^tjfied iLsl^aki^excessivq.Lcvin contributions. USDC did not 

demonstra.te:tlifblig||^.a reaib^61^'^cjoijnpg method that it had sufficient Levin-eligible 

funds tO'jri^e the Lev|n,dis9inserneritt:S t time when it spent the monies acquired 

from the tWdi'excessive'dqnatio^iir^Lcvin activities and it did not demonstrate that the 

most recently disclosed LcVm doqitions were, in fact. Levin-eligible. 

Legal Standard .. ; 

Party Committee Limitsr A state, district or local committee of a political party must 

not solicit or accept froi^T any person (including any entity established, financed, 

maintained, or controlled by such person) one or more donations of Levin funds 

aggregating more than SI 0,000 in a calendar year. If the state limit is less than SI 0,000, 

the committee must adhere to that limit. 11 CFR §300.3 l(d)(l)-(2). 

Levin Funds Accounts and Accounting. For Levin fund expenditures. Committees 

must either; 

• Establish a separate Levin account (in addition to the non-federal and federal 

accounts); or 

• Deposit Levin funds into the non-federal account, and demonstrate through a 

reasonable accounting method that it has sufficient Levin funds in the account to 
14 

cover any expenses allocated to Levin funds.'" 11 CFR §§ 102.5(a)(3) and 

300.30(c). 

Facts and Analysis 

A. Facts 

USDC deposited its Levin funds into its non-federal account, and reportedly "flagged" 

(tracked) its donations. It later transferred these Levin donations, as needed, into its 

Levin account. During the audit period, USDC made two lump-sum transfers from its 

non-federal account into its Levin account, in anticipation of making Levin 

disbursements. The Audit staff reviewed these donations and identified two donations in 

2012 that exceeded the Levin donation limit. 

USDC exceeded the Levin donation limit by S 1^,000. . Utah state law does not address 

limits for Levin fund donations; therefore, the fie^ral limit of S 10,000 per donor in a 

calendar year should have been followed.,<=1^^ do^vmade donations totaling SI8,000, 

and exceeded the donation limit by S8,Q0alitdHhe of}i^r„donor made donations totaling 

S14,000, and exceeded the donatiorulil^it by S4,000. 

% B. Interim Audit Report &<^dit Divislqp.iRecommend^jon 

At the exit conference, the Audifejaff discussed Jhis matter with USDC representatives 

who replied that Levin Funds were ttSfisferred frbm USDC's non-Federal account to its 

i.evin account, and that.Jbecause of a cle'ritol-jerror, th'e'wrong Levin donors were 

disclosed. USDC prbposed eniending,fts rejjdrtjqjXlisclose different Levin eligible 

donors. -i?-' 

The Audit..:sla1ft; I'^n^cbnsuiS^n ^ of General Counsel, agreed that the 

amendmfefttSj.would re%lye tif^i|sue ordxcessive Levin donations, but sought more 

information ahiput the ac^unting^jijpthod utilized and the related clerical disclosure 

errors. tt0?-. 

The Interim Audit R'^on^tommended that USDC provide evidence these donations 

were not excessive or sf^ through a reasonable accounting method that total Levin 

funds were sufficient arid that the proposed substitute Levin donors were Levin eligible at 

the time Levin expenditures were made. Absent such action, USDC should refund the 

SI 2,000 in excessive donations and provide evidence of such refunds (to include copies 

of the front and back of the cancelled checks). 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, USDC stated that it would file 

amendments within 30 days to disclose different Levin eligible donors, which it has since 

done. However, no information was provided regarding USDC's accounting method to 

demonstrate that total Levin funds were sufficient and that the proposed substitute Levin 

donors were Levin eligible at the time Levin expenditures were made. 

Levin funds cannot be deposited into a federal account. 
IS 

The Audit staff agrees the amendments filed for the excessive Levin amount is sufficient 

as long as associated records are provided that show the adequacy of Levin Funds and the 

eligibility of Levin donors. 

i Finding 5. Receipt of Contributions that Exceed Limits 

Summary 

USOC accepted contributions from two political action committees that exceeded the 

limitation by $8,S00. Both of the excessive contributions were refunded; however, the 

refunds were not made timely. In response to the Interim Audit Report recommendation, 

USDC stated that it has no additional comments regarding this matter. 

Legal Standard 

A. Party Committee Limits. A state, district orill^al committee of a political party may 

not receive more than a total of SS,000 per'^lendar year from a multicandidate 

political committee. 52 U.S.C. §30116(4)(2)(C^:.a 11 CFR §110.2(d). 

B. Handling Contributions That Appjeal'^xcessiVe^. If a committee receives a 

contribution that appears to be excjilSsive, the commi^^e must either; 

• Return the questionable checli"6)>the dbB9r; or 

• Deposit the check into.its federal-acboun^arid: w 

o Keep enough md^eyjn the acc^pjit to cover all potential refunds; 

o Keep a written recp'i^'px^laining'why the contribution may be illegal; 

o Include,|bis.explane(b]on^t^^;,S,chedm^^ the contribution has to be 

itemizb'^ &b^X.e its lega]it^''is'^^b.lisifbd; 

o SeelS%r:eattribu.tion or ^design^pn of the excessive portion, following 

the insttu!&.tionV.provided'ii) the Commission regulations; and 

<? • If l^fj.comi^it^d'db^.ijpt ridfeive a proper reattribution or redcsignation 

.v.... withim60,days^fter ^cfefVing the excessive contribution, refund the 

. excessivfeV^prtion^p^the donor. 11 CFR §103.3(b)(3), (4) and (5). 

Facts and Anail^sis 

.-f-

' • r-yf A. Facts 

USDC accepted contributions from two multicandidate political action committees that 

exceeded the limitation by S8,S00. One of the contributions was made in 2011 for 

S10,000 and the other was made in 2012 for S8,S00, resulting in excessive contributions 

of SS,000 and S3,S00, respectively. Both of the excessive contributions were refunded; 

however, the refunds were not made timely (refunds were made 129 days and 373 days 

later, respectively). 

B. Interim Audit Report & Audit Division Recommendation 

Subsequent to the exit conference, the Audit staff presented this matter to USDC 

representatives. USDC acknowledged the errors and noted that they had addressed them. 

The Interim Audit Report recommended that USDC provide any additional comments it 

considered relevant to this matter. 
16 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation. USDC made no additional 

comments. The Audit stafT concludes that USDC accepted contributions that exceeded 

the limitation by S8,S00 and the funds were untimely refunded. 

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