17

B. Separate Schedules. A political committee must file separate schedules for debts
owed by or to the committee, together with a statement explaining the circumstances and
conditions under which each debt and obligation was incurred or extinguished. 11 CFR
§104.11(a).

C. Itemizing Debts and Obligations.

e A debt of $500 or less, not including rent, salary or other regularly reoccurring
administrative expenses, must be reported once it has been outstanding 60 days
from the date incurred (the date of the transaction); the committee reports it on the
next regularly scheduled report.

e Regularly recurring administrative expenses, like rent, do not have to be treated as
debts until payment is due.

e A debt exceeding $500 must be disclosed in the report that covers the date on
which the debt was incurred. 11 CFR §104.11(b).

Facts and Analysis

A. Facts

During audit fieldwork, the Audit staff reviewed TDP’s disbursement records and
disclosure reports for proper reporting of debts and obligations. This review identified
debts owed to five vendors totaling $26,236" that were not reported on Schedule D.
These vendors mainly provided research, fundraising consulting, rent, accounting
services and software.

The Audit staff calculated the debts owed to the vendors based on the invoice date and
the subsequent payment date. Debts were outstanding for periods ranging from 34 days
to 564 days. TDP did not report any debt on Schedule D during the audit cycle.

B. Interim Audit Report & Audit Division Recommendation

The Audit staff discussed this matter at the exit conference and provided TDP
representatives a schedule detailing the transactions requiring disclosure on Schedule D.
TDP representatives did not provide any comments.

The Interim Audit Report recommended that TDP provide additional documentation
demonstrating that these transactions were not obligations which required reporting on
Schedule D. Absent such documentation, the Interim Audit Report recommended that
TDP amend its reports or file a Form 99 to correctly disclose these debts and obligations.

C. Committee Response to Interim Audit Report
In response to the Interim Audit Report recommendation, TDP amended its disclosure
reports which materially corrected the public record.

'3 Each debt in this amount was counted only once even if it was required to be disclosed over multiple
periods.


11

Notwithstanding the above, any excessive contribution that was made on a written

instrument that is imprinted with the names of more than one individual may be

presumptively attributed among the individuals listed unless instructed otherwise by

the contributor(s). The committee must inform each contributor:

e¢ How the contribution was attributed; and

e The contributor may instead request a refund of the excessive amount. 11 CFR.
§110.1(k)(3)(B).

E. Receipt of Contributions. Organizations that are political committees under the Act,
other than national party committees shall establish a separate Federal account in a
depository in accordance with 11 CFR part 103. Such account shall be treated as a
separate Federal political committee that must comply with the requirements of the
Act including the registration and reporting requirements of 11 CFR parts 102 and
104. Only funds subject to the prohibitions and limitations of the Act shall be
deposited in such separate Federal account. 11 CFR §$102.5(a).

Facts and Analysis

A. Facts
The Audit staff utilized sample testing and a review of other contributions not included in
the sample population to identify apparent excessive contributions from individuals.

Excessive Contributions-Testing Method

High Dollar/Other Review - contribution error $166,450
amount
Total Amount of Excessive Contributions $166,450
Reasons for Excessive Contributions

Contributions transferred to the non-federal

. wes $151,200
account without prior notification
Contributions not resolved via signed reattribution $15,250

letter, refund or transfer to the non-federal account

Total Amount of Excessive Contributions $166,450

B. Additional Information

TDP did not maintain a separate account for questionable contributions. Based on its
cash on hand at the end of the audit period (December 31, 2016), it appears that TDP did
not maintain sufficient funds to make refunds of the remaining excessive contributions
that had not been previously transferred to the non-federal account.

C. Interim Audit Report & Audit Division Recommendation

The Audit staff discussed this matter with TDP representatives at the exit conference and
provided schedules of the apparent excessive contributions. In response to the exit
conference, TDP representatives did not provide any comments and did not submit any
additional documentation.



Audit Hearing

TDP declined the opportunity for a hearing before the Commission on the matters
presented in this report.


18

D. Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP filed amended disclosure reports
that disclosed its debts and obligations, and materially corrected the public record.

E. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division Recommendation
Memorandum in which the Audit staff recommended that the Commission find that TDP
failed to disclose debts and obligations to vendors totaling $26,236.

The Commission approved the Audit staff's recommendation.


15

funds. There was no payroll paid exclusively with non-federal funds. In response to the
Interim Audit Report recommendation, TDP stated that it now has procedures in place to
track the percentage of time employees spend on federal election activities. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP failed to maintain monthly payroll logs
totaling $409,900, as required, to document the percentage of time each employee spent
in connection with a federal election.

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;
¢ 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 §106.7(d)(1).

Facts and Analysis

A. Facts

During audit fieldwork, the Audit staff reviewed disbursements for payroll. TDP did not
maintain any monthly logs or equivalent records to document the percentage of time each
employee spent in connection with a federal election. These logs are required to
document the proper allocation of federal and non-federal funds used to pay employee
salaries and wages. For 2015 and 2016, TDP did not maintain monthly logs for $409,900
in payroll.!' This amount consisted entirely of payroll which was reported on Schedule
H4 (Disbursements for Allocated Federal and Non-Federal Activity) and paid with an
allocation of federal and non-federal funds during the same month. There was no payroll
paid exclusively with non-federal funds.

B. Interim Audit Report & Audit Division Recommendation

At the exit conference, the Audit staff discussed the payroll recordkeeping requirement
with TDP representatives and provided schedules of the payroll transactions. TDP
representatives did not provide any comments.

"| 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 1). Payroll amounts do not include fringe benefits.


2015 Committee Activity

Reported Bank Records Discrepancy
Pies re : ane $12,577 $12,079 Gavin
Receipts $714,262 $862,657 |, 9148398
Disbursements $659,107 $806,516 | 5.47408
i December 31,2015 $67,732 868.220 | Understated

The understatement of receipts resulted from the following:

¢ Contributions from individuals not reported $ 106,950°
e Transfer from affiliated committee not reported: 43,500
¢ Contribution from political committee not reported 1,000
© Unexplained difference 3.055)
Net Understatement of Receipts $ 148,395
The understatement of disbursements resulted from the following:
e Transfers to Non-federal account not reported $ 105,000
e Transfer to affiliated committee not reported 43,500
e Disbursement reported incorrectly 115
e Unexplained difference (1,206)
Net Understatements of Disbursements $147,409

2. Interim Audit Report & Audit Division Recommendation

At the exit conference, the Audit staff discussed the misstatements for calendar year
2015 with TDP representatives and provided schedules detailing the misstatements.
TDP representatives did not provide any comments.

The Interim Audit Report recommended that, TDP amend its disclosure reports or file
a Form 99 (Miscellaneous Electronic Submission) to correct the misstatements noted
above. It was further recommended, that TDP reconcile the cash on hand in its most
recently filed report to include these adjustments and correct any subsequent
discrepancies.

3. Committee Response to Interim Audit Report
In response to the Interim Audit Report recommendation, TDP amended its disclosure
reports to correct the misstatements for the 2015 calendar year.

© Of these contributions not reported, $105,000 represent a portion of the excessive contributions (see

Finding 2) that were transferred timely without notification to the contributor, to the non-federal account.



Part III
Summaries

Commission Findings

Finding 1. Misstatement of Financial Activity

During audit fieldwork, a comparison of TDP’s reported financial activity with its bank
records revealed a misstatement of receipts and disbursements in calendar year 2015.
Specifically, TDP understated its receipts and disbursements by $148,395 and $147,409,
respectively. In response to the Interim Audit Report recommendation, TDP amended its
disclosure reports correcting the misstatements for the 2015 calendar year. TDP provided
no formal response to the Draft Final Audit Report.

Additionally, a comparison of TDP’s bank activity with its original reports filed for 2015
and 2016 also revealed a material misstatement of receipt and disbursement activity. In
response to the Interim Audit Report recommendation, TDP had no comments. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP understated receipts and disbursements by
$148,395 and $147,409, respectively for calendar year 2015. Additionally, the
Commission approved a finding that TDP understated receipts by $1,362,191 and
disbursements by $1,377,720 on the original reports filed over the two-year period ending
December 31, 2016. (For more detail, see p. 6.)

Finding 2. Receipt of Contributions in Excess of the Limit
During audit fieldwork, the Audit staff reviewed contributions from individuals to
determine if any exceeded the contribution limit. This review indicated that TDP
received apparent excessive contributions totaling $166,450. Errors totaling $151,200°
occurred due to TDP not notifying contributors that the excessive portion of the
contribution was transferred to the non-federal account. In response to the Interim Audit
Report recommendation, TDP provided copies of letters to contributors, notifying them
that the excessive portion of their contribution had been transferred to the non-federal
account and offering the “option to request a refund”, thus untimely resolving the
excessive portion. For the remaining excessive contributions totaling $15,250, TDP also
notified contributors, via letter, that the excessive portion of their contribution had been
“allocated” to the non-federal account and offered an “option to request a refund.” TDP
has not yet made the transfer to the non-federal account totaling $15,000‘, but reported

? The sample projection amount of $34,824 was removed by the Audit staff from this finding after further
analysis.

? This amount includes $10,250 that was eligible for presumptive reattribution. However, instead of
presumptively reattributing the excessive portion to another contributor, TDP transferred the funds to its
non-federal account.

* In June 2019, subsequent to the Draft Final Audit Report, TDP transferred the $15,000 to the non-federal

account,


Part II

Overview of Committee

Committee Organization

Important Dates

e Date of Registration

May 19, 1983

e Audit Coverage

January 1, 2015 - December 31, 2016

Headquarters

Nashville, Tennessee

Bank Information

e Bank Depositories

Three

e Bank Accounts

Three Federal and One Non-Federal

Treasurer

e Treasurer When Audit Was Conducted

Dr. Geeta McMillan (2/10/17 - Present)

e Treasurer During Period Covered by Audit

Wade Munday (1/29/13 - 2/9/17)

Management Information

e Attended FEC Campaign Finance Seminar

Yes

© Who Handled Accounting and
Recordkeeping Tasks

Paid Staff

Overview of Financial Activity

(Audited Amounts)

Cash on hand @ January 1, 2015 $ 12,080
Receipts

o Contributions from Individuals 1,107,037
oContributions from Other Political Committees 115,750
oTransfers from A ffiliated/Other Party Committees 3,457,311
oTransfers from Nonfederal Account 411,213
o Other Receipts 88,883
Total Receipts $ 5,180,194
Disbursements

o Operating Expenditures 1,217,969
oTransfers to Affiliated/Other Party Committees 3,161,140
o Federal Election Activity 643,657
o Other Disbursements 160,453
Total Disbursements $ 5,183,219
Cash on hand @ December 31, 2016 $ 9,055



16

For TDP employees that were paid with an allocation of federal and non-federal funds,
the Interim Audit Report recommended that TDP:
¢ provide evidence that monthly time logs were maintained to document the
percentage of time an employee spent in connection with a federal election; or
e provide and implement a plan to maintain monthly payroll logs in the future.

C. Committee Response to Interim Audit Report

In response to the Interim Audit Report recommendation, TDP stated that it now has
procedures in place to track the percentage of time employees spend on federal activities.
The Audit staff concludes that TDP did not maintain monthly logs for payroll totaling
$409,900.

D. Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP now has procedures in place to
track the percentage of time employees spend on federal activities.

E. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division Recommendation
Memorandum in which the Audit staff recommended that the Commission find that TDP
failed to maintain monthly payroll logs totaling $409,900, as required, to document the
percentage of time each employee spent in connection with a federal election.

The Commission approved the Audit staff’s recommendation.

| Finding 5. Reporting of Debts and Obligations

Summary

During audit fieldwork, the Audit staff noted that TDP failed to disclose debts and
obligations owed to five vendors totaling $26,236. In response to the Interim Audit
Report recommendation, TDP amended its disclosure reports which materially!”
corrected the public record. TDP provided no formal response to the Draft Final Audit
Report.

The Commission approved a finding that TDP failed to disclose debts and obligations to
vendors totaling $26,236.

Legal Standard

A. Continuous Reporting Required. A political committee must disclose the amount
and nature of outstanding debts and obligations owed by or to the reporting committee
until those debts are extinguished. 52 U.S.C. §30104(b)(8) and 11 CFR §§104.3(d) and
104.11(a).

'2 Debt totaling $5,881 was disclosed incorrectly as being incurred in 2015 instead of 2016.


Part IV
Commission Findings

| Finding 1. Misstatement of Financial Activity

Summary

During audit fieldwork, a comparison of TDP’s reported financial activity with its bank
records revealed a misstatement of receipts and disbursements in calendar year 2015.
Specifically, TDP understated its receipts and disbursements by $148,395 and $147,409,
respectively. In response to the Interim Audit Report recommendation, TDP amended its
disclosure reports correcting the misstatements for the 2015 calendar year. TDP provided
no formal response to the Draft Final Audit Report.

Additionally, a comparison of TDP’s bank activity with its original reports filed for 2015
and 2016 also revealed a material misstatement of receipt and disbursement activity. In
response to the Interim Audit Report recommendation, TDP had no comments. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP understated receipts and disbursements by
$148,395 and $147,409, respectively for calendar year 2015. Additionally, the
Commission approved a finding that TDP understated receipts by $1,362,191 and
disbursements by $1,377,720 on the original reports filed over the two-year period ending
December 31, 2016.

Legal Standard

Contents of Reports. Each report must disclose:

e The amount of cash on hand at the beginning and end of the reporting period;

e The total amount of receipts for the reporting period and for the calendar year;

e The total amount of disbursements for the reporting period and for the calendar year;
and

e Certain transactions that require itemization on Schedule A (Itemized Receipts) or
Schedule B (Itemized Disbursements). 52 U.S.C. §30104(b)(1), (2), (3), (4) and (5).

Facts and Analysis
A. Misstatement of Financial Activity — Most Recent Reports Filed Prior to the

Audit

1. Facts

During audit fieldwork, the Audit staff reconciled TDP’s reported financial activity
with its bank records for the calendar years 2015 and 2016. The reconciliation
determined that TDP misstated receipts and disbursements for 2015. The following
chart details the discrepancies between TDP’s disclosure reports and bank activity.
The succeeding paragraphs explain why the discrepancies occurred.


Final Audit Report of the

Commission on the Tennessee

Democratic Party
(January 1, 2015 - December 31, 2016)

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
committee complied 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.

1 §2 U.S.C. §30111(b).

About the Committee (p. 2)

The Tennessee Democratic Party is a state party committee
headquartered in Nashville, Tennessee. For more information,

see the chart on the Committee organization, p. 2.

Financial Activity (p. 2)
Receipts

Commission Findings (p. 3)
Misstatement of Financial Activity (Finding 1)

fe}
°

O°

re}

°

Contributions from Individuals

Contributions from Other
Political Committees

Transfers from A ffiliated/Other

Party Committees
Transfers from Nonfederal
Account

Other Receipts

Total Receipts

Disbursements

°

o Transfers to A ffiliated/Other

°
fe}

Operating Expenditures

Party Committees
Federal Election Activity
Other Disbursements

Total Disbursements

$ 1,107,037
115,750
3,457,311
411,213
88,883

$ 5,180,194
$ 1,217,969
3,161,140
643,657

160,453
$ 5,183,219

Receipt of Contributions in Excess of the Limit (Finding 2)
Disclosure of Joint Fundraising Transfers (Finding 3)

Recordkeeping for Employees (Finding 4)
Reporting of Debts and Obligations (Finding 5)


4. Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP did not provide any additional
comments with respect to this matter.

5. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division
Recommendation Memorandum in which the Audit staff recommended that the
Commission find that TDP understated receipts by $1,362,191 and disbursements by
$1,377,720 on the original reports filed over the two-year period ending December
31, 2016.

The Commission approved the Audit staff's recommendation.

| Finding 2. Receipt of Contributions in Excess of the Limit |

Summary

During audit fieldwork, the Audit staff reviewed contributions from individuals to
determine if any exceeded the contribution limit. This review indicated that TDP
received apparent excessive contributions totaling $166,450’. Errors totaling $151,2008
occurred due to TDP not notifying contributors that the excessive portion of the
contribution was transferred to the non-federal account. In response to the Interim Audit
Report recommendation, TDP provided copies of letters to contributors, notifying them
that the excessive portion of their contribution had been transferred to the non-federal
account and offering the “option to request a refund”, thus untimely resolving the
excessive portion. For the remaining excessive contributions totaling $15,250, TDP also
notified contributors, via letter, that the excessive portion of their contribution had been
“allocated” to the non-federal account and offered an “option to request a refund.” TDP
has not yet made the transfer to the non-federal account totaling $15,000°, but reported
the transfer as a debt on Schedule D (Debts and Obligations) and refunded $250 to one
contributor. TDP provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP received excessive contributions totaling
$166,450.

7 The sample projection amount of $34,824 was removed by the Audit staff from this finding after further
analysis.

8 This amount includes $10,250 that was eligible for presumptive reattribution. However, instead of
presumptively reattributing the excessive portion to another contributor, TDP transferred the funds to its
non-federal account.

° In June 2019, subsequent to the Draft Final Audit Report, TDP transferred the $15,000 to the non-federal
account.


4, Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP filed amended disclosure
reports that corrected the misstatement of receipts and disbursements.

5. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division
Recommendation Memorandum in which the Audit staff recommended that the
Commission find that TDP understated receipts and disbursements by $148,395 and
$147,409, respectively for calendar year 2015.

The Commission approved the Audit staff's recommendation.

Misstatement of Financial Activity — Original Reports Filed

1, Facts

During audit fieldwork, in addition to examining TDP’s most recent reports filed
prior to audit notification, the Audit staff also compared TDP’s originally filed
reports with its bank records. The purpose of this additional reconciliation was to
identify the degree to which TDP had misstated its original filings.

The Audit staff calculated that TDP understated its receipts by $1,362,191 and
disbursements by $1,377,720 on the original reports filed over the two-year period
ending December 31, 2016. These understatements in receipts and disbursements
were primarily due to transfers, received from and made to, affiliated committees. In
addition, these figures include the understatement of receipts ($148,395) and
disbursements ($147,409) discussed in Section A above (Misstatement of Financial
Activity — Most Recent Reports Filed Prior to the Audit). The latest amendments
filed prior to the audit corrected the understatement of receipts and disbursements
related to the transfers.

2. Interim Audit Report & Audit Division Recommendation

The Audit staff discussed the understatement of receipts and disbursements on TDP’s
original reports during the exit conference. TDP representatives did not provide any
comments.

The Interim Audit Report recommended that TDP provide any additional comments it
deemed necessary with respect to this matter.

3. Committee Response to Interim Audit Report
In response to the Interim Audit Report recommendation, TDP had no comments.


the transfer as a debt on Schedule D (Debts and Obligations) and refunded $250 to one
contributor. TDP provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP received excessive contributions totaling
$166,450. (For more detail, see p. 9.)

Finding 3. Disclosure of Joint Fundraising Transfers

During audit fieldwork, the Audit staff reviewed receipts to verify the accuracy of the
information disclosed on TDP’s reports. TDP received net proceeds of $3,113,531 from
two joint fundraisers but did not itemize memo entries totaling $1,509,766 on Schedule A
(Itemized Receipts), as required. These memo entries represented the gross contributions
from the original contributors. In response to the Interim Audit Report recommendation,
TDP filed amended Schedules A itemizing the memo entries totaling $1,509,766. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP failed to disclose memo entries which
represented the gross contributions from the original contributors totaling $1,509,766.
(For more detail, see p. 13.)

Finding 4. Recordkeeping for Employees

During audit fieldwork, the Audit staff determined that TDP did not maintain monthly
payroll logs, as required, to document the percentage of time each employee spent in
connection with a federal election. For 2015 and 2016, the Audit staff identified
payments to TDP employees totaling $409,900 for which TDP did not maintain monthly
payroll logs. This consisted of payroll which was allocated with federal and non-federal
funds. There was no payroll paid exclusively with non-federal funds. In response to the
Interim Audit Report recommendation, TDP stated that it now has procedures in place to
track the percentage of time employees spend on federal election activities. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP failed to maintain monthly payroll logs
totaling $409,900, as required, to document the percentage of time each employee spent
in connection with a federal election. (For more detail, see p. 14.)

Finding 5. Reporting of Debts and Obligations

During audit fieldwork, the Audit staff noted that TDP failed to disclose debts and
obligations owed to five vendors totaling $26,236. In response to the Interim Audit
Report recommendation, TDP amended its disclosure reports which materially> corrected
the public record. TDP provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP failed to disclose debts and obligations to
vendors totaling $26,236. (For more detail, see p. 16.)

5 Debt totaling $5,881 was disclosed incorrectly as being incurred in 2015 instead of 2016.


Part I
Background

Authority for Audit

This report is based on an audit of the Tennessee Democratic Party (TDP), 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 under 52 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 Audit staff evaluated various risk
factors and as a result, this audit examined:

the receipt of excessive contributions;

the receipt of contributions from prohibited sources;

the disclosure of contributions received;

the disclosure of individual contributors’ occupation and name of employer;
the disclosure of disbursements, debts and obligations;

the disclosure of expenses allocated between federal and non-federal accounts;
the consistency between reported figures and bank records;

the completeness of records; and

other committee operations necessary to the review.

CEN AWAwN >

Commission Guidance

Request for Early Commission Consideration of a Legal Question

Pursuant to the Commission’s “Policy Statement Establishing a Program for Requesting
Consideration of Legal Questions by the Commission,” several state party committees,
unaffiliated with TDP, 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 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 TDP 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 TDP employees paid with
100 percent federal funds and reported as such.


The Interim Audit Report recommended that TDP provide documentation demonstrating
that these contributions were not excessive, or if excessive, were resolved in a timely
manner. Absent such a demonstration, TDP should have sent letters to those contributors
whose contributions were eligible for presumptive reattribution and/or refund any
remaining excessive amounts that had not been previously transferred to the non-federal
account.

D. Committee Response to Interim Audit Report
In response to the Interim Audit Report recommendation, TDP provided the following:

Corrective Action Taken in Response to the Interim Audit Report
Letters sent notifying contributors of transfer to the
‘ $151,200
non-federal account — Untimely
Excessive contribution refunded- Untimely $250
Debt to non-federal account reported on Schedule D $15,000

Additional Information:

e For excessive contributions timely transferred to the non-federal account without

notification totaling $151.200
TDP provided copies of letters, dated February 21, 2019, notifying contributors

that the excessive portion of their contribution had been previously “allocated” to
the non-federal account and offering an option to request a refund or “alternative
redesignation” of the excessive portion.

e For excessive contributions not resolved via transfer to the non-federal account or
refund totaling $15,250
TDP provided copies of notification letters sent to two contributors totaling
$15,250. The letters stated the excessive portion of their contribution had been
“allocated” to the non-federal account and offered an option to request a refund,
In response to the letters, one contributor requested a refund of $250 excessive.
Although, TDP has disclosed the refund to the contributor, it has not provided the
Audit staff with documentation which demonstrates the check was negotiated
(copy of the front and back of the negotiated check). TDP stated that it intends to
transfer the remaining $15,000 to the non-federal account. Until the transfer is
made, TDP has disclosed this amount as debt on Schedule D.

The Audit staff concluded that TDP resolved the excessive contributions, albeit untimely.

E. Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP resolved the excessive
contributions, albeit untimely.


14

Facts and Analysis

A. Facts

During audit fieldwork, the Audit staff determined that TDP received a total of
$3,113,531 in net proceeds from joint fundraising activity; $3,021,100 from Hillary
Victory Fund (HVF) and $92,431 from the Tennessee State Party Victory Fund (TVF).
However, TDP did not itemize memo entries totaling $1,509,766 on Schedules A
(Itemized Receipts) from the HVF ($1,423,722) and the TVF ($86,044).

B. Interim Audit Report & Audit Division Recommendation

At the exit conference, the Audit staff discussed this matter with TDP representatives and
provided schedules detailing the missing disclosure items. TDP representatives did not
provide any comments.

The Interim Audit Report recommended that TDP file either amended Schedules A or
Form 99 to itemize the required memo entries.

C. Committee Response to Interim Audit Report
In response to the Interim Audit Report recommendation, TDP filed amended Schedules
A itemizing memo entries totaling $1,509,766."

D. Draft Final Audit Report
The Draft Final Audit Report acknowledged that TDP filed amended Schedules A
itemizing the memo entries.

E. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division Recommendation
Memorandum in which the Audit staff recommended that the Commission find that TDP
failed to disclose memo entries which represented the gross contributions from the
original contributors totaling $1,509,766.

The Commission approved the Audit staffs recommendation.

| Finding 4. Recordkeeping for Employees

Summary

During audit fieldwork, the Audit staff determined that TDP did not maintain monthly
payroll logs, as required, to document the percentage of time each employee spent in
connection with a federal election. For 2015 and 2016, the Audit staff identified
payments to TDP employees totaling $409,900 for which TDP did not maintain monthly
payroll logs. This consisted of payroll which was allocated with federal and non-federal

© Of this amount, $78,999 were not adequately disclosed on Schedule A as unitemized lump sum
contributions from TVF.


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Commission Guidance
Audit Hearing

Part II. Overview of Committee

Committee Organization
Overview of Financial Activity

Part III. Summaries
Commission Findings

Part IV. Commission Findings
Finding 1. Misstatement of Financial Activity
Finding 2. Receipt of Contributions in Excess of the Limit
Finding 3. Disclosure of Joint Fundraising Transfers
Finding 4. Recordkeeping for Employees
Finding 5. Reporting of Debts and Obligations

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Final Audit Report of the
Commission

on the
Tennessee Democratic Party

(January 1, 2015 - December 31, 2016)


10

Legal Standard.

A.

B

Party Committee Limits. A party committee may not receive more than a total of
$10,000 per year from any one individual. This limit is shared by the state, district,
and local party committees. 52 U.S.C. §30116(a)(1)(D) and 11 CFR §110.9.
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:
= Keep enough money in the account to cover all potential refunds or
establish a separate account in a campaign depository for such
contributions;
= Keep a written record explaining why the contribution may be illegal;
= Include this explanation on Schedule A if the contribution has to be
itemized before its legality is established;
= Seek a reattribution of the excessive portion, following the instructions
provided in the Commission regulations (see below for explanation of
reattribution); and
= Ifthe committee does not receive a proper reattribution within 60 days
after receiving the excessive contribution, refund the excessive portion to
the donor. 11 CFR §§103.3(b)(3), (4) and (5) and 110.1(k)(3)(i)(B).

Joint Contributions. Any contribution made by more than one person, except for a
contribution made by a partnership, must include the signature of each contributor on
the check, money order, or other negotiable instrument or in a separate writing. A
joint contribution is attributed equally to each donor unless a statement indicates that
the funds should be divided differently. 11 CFR §110.1(k)(1) and (2).

Reattribution of Excessive Contributions. The Commission regulations permit

committees to ask donors of excessive contributions (or contributions that exceed the

committee’s net debts outstanding) whether they had intended their contribution to be

a joint contribution from more than one person and whether they would like to

reattribute the excess amount to the other contributor. The committee must inform

the contributor that:

e The reattribution must be signed by both contributors;

e The reattribution must be received by the committee within 60 days after the
committee received the original contribution; and

e The contributor may instead request a refund of the excessive amount. 11 CFR
§110.1(k)(3).

Within 60 days after receiving the excessive contribution, the committee must either
receive the proper reattribution or refund the excessive portion to the donor. 11 CFR
§§103.3(b)(3) and 110.1(k)(3)(ii)(B). Further, a political committee must retain
written records concerning the reattribution in order for it to be effective. 11 CFR

§110.1(1)(5).


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F. Committee Response to the Draft Final Audit Report
TDP provided no formal response to the Draft Final Audit Report.

Commission Conclusion

On August 30, 2019, the Commission considered the Audit Division Recommendation
Memorandum in which the Audit staff recommended that the Commission find that
TDP received excessive contributions totaling $166,450.

The Commission approved the Audit staff's recommendation.

| Finding 3. Disclosure of Joint Fundraising Transfers

Summary

During audit fieldwork, the Audit staff reviewed receipts to verify the accuracy of the
information disclosed on TDP’s reports. TDP received net proceeds of $3,113,531 from
two joint fundraisers but did not itemize memo entries totaling $1,509,766 on Schedule A
(Itemized Receipts), as required. These memo entries represented the gross contributions
from the original contributors. In response to the Interim Audit Report recommendation,
TDP filed amended Schedules A itemizing the memo entries totaling $1,509,766. TDP
provided no formal response to the Draft Final Audit Report.

The Commission approved a finding that TDP failed to disclose memo entries which
represented the gross contributions from the original contributors totaling $1,509,766.

Legal Standard

A. Itemization of Contributions from Joint Fundraising Efforts. Participating
political committees shall report joint fundraising proceeds in accordance with 11
CFR §102.17(c)(8) when such funds are received from the fundraising representative.
11 CFR §102.17(c)(3)(iii).

Each participating political committee reports its share of the net proceeds as a
transfer-in from the fundraising representative and shall also file a memo
Schedule A itemizing its share of gross receipts as contributions from the original
contributors to the extent required under 11 CFR §104.3(a). 11 CFR §102.17(c)
(8)@B).

B. Itemization required. Political committees must itemize:
e Any contributions from an individual if it exceeds $200 per calendar year either
by itself or when aggregated with other contributions from the same contributor.
11 CFR §104.3(a)(4)(i); and
e Every contribution from any political committee, regardless of the amount. 52
U.S.C. §30104(b)(3)(A) and (B).