FEDERAL ELECTION COMMISSION 

WASHINGTON. O.C. 20463 

January 7, 2014 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson • ^ 

Deputy General Counsel - Law 

Lorenzo Holloway __ 

Assistant General CounwP^ 

Compliance Advice 

Danita C. Alberico /hi 

Attorney 

SUBJECT: Draft Final Audit Report on the Democratic Party of Illinois (LRA 887) 

L INTRODUCTION 

The Office of flie General Counsel reviewed the Draft Final Audit Rq)oit ("DFAR") on die 

Dohocratic Party oflllinoisnhe Committee"). The OFAR contains four findings: Misstatement 

of Financial Activity (Finding I); Recordkeeping for Employees (Finding 2); Fundiaising 

Receipts (Finding 3); and, Unreported Levin Fund Activity finding 4). Our comments address 

Finding 2 (Recordk^ing for Employees) and Finding 3 (Fundiaising Receipts). We concur witti 

any findings not specifically discussed in diis memorandum. If you have any questions, please 

contact Danita C. Alberico, the attorney assigi^ to this audit. 
Comments to the Draft Final Audit Report 

Democratic Party of Illinois (LRA 887) 

Page 2 

11. RECORDKEEPING FOR EMPLOYEES (Finiling 2) 

The DFAR finds that the Committee did not mainlain monthly logs in accordance with 11 

C.F.R. §106.7 (d)(1) to document the percentage of time each employee spent on federal election 

activity ("FEA"). For 2009 acid 2010, the Committee was required to maintain logs for payroll 

totaling $729,125. During audit fieldwork, the Conunittee provided a payroll log that was 

maintained for September 2010, but the log did not include the percentage of time diat employees 

spent in connection with federal election activity. The Committee also provided 

agreement-fbr-services contracts, campaign employment applications and IRS W-4 forms for 

most of its employees. The auditors advised this Office, however, that this documentation, even 

when considered together with the September 2010 logs, did not provide a breakdown of the 

employees' actual time spent on federal and non-federal activities, thus nuking it impossible for 

the auditors to calculate the percentages from the information sulnnitted. In addition, in response 

to the exit conference, the Committee submitted notarized and swom affidavits by the 

Corrunittee's executive director and coordinated campaign director that discussed the amount of 

compensated time spent by each employee on activities in connection with federal elections. 

The DFAR finds that the notarized and swom affidavits were not sufficient to resolve the 

finding because the documents did not provide the infomution required under 11 C.F.R. §106.7 

(d)(1). In discussion with this Office, the auditors also indicated tto the notarized and swom 

affidavits could not have resolved the finding because the documents were not created and 

maintained prior to issuance of the audit notification letter. This rationale, however, is not 

discussed in the DFAR. We recommend that the auditors make clear in the DFAR that while the 

notarized and swom affidavits mqr be useful for allocation purposes, they are not sufficient to 

fulfill the recordkeeping requirement due to foe timefiame in which they were prq)ared. See Final 

Audit Rq}ort of the Commission on the Georgia Federal Elections Committee (Aug. 9,2011) 

(Commission found that foe committee had not maintained adequate documentation detailing time 

spent on federal activities for employees despite the coimnittee's submission of declarations from 

its employees attesting to the amount of time spent on federal activities in cormection wifo a 

federal election). 

The Committee acknowledged that it needed to improve its system for maintaining 

monthly payroll logs. It also provided foe auditors wifo a sample payroll log that it intends to use 

as part of its general compliance procedures in the future. The Audit Division informed this Office 

that the sample payroll log would be sufficient for audit compliance because the log provides 

colunms for actual federal and non-federal hours worked, a 'Type of FEA' column for federal 

hours worked, and it totals the hours and gives a percent of FEA hours worked as coixqjared to the 

total hours worked. The DFAR, however, does not indicate whether foe sample log would be 

sufficient to provide foe percentage of time that foe employees spent on FEA. To encourage 

compliance wifo the Conunission's regulations and to assist the Coirunittee, we recommend that 

foe auditors specifically state in the DFAR that the Committee's sample payroll log would be 

sufficient and the reasons why. 
Comments to the Draft Final Audit Report 

Democratic Party of Illinois (LRA 887) 

P^3 

111. FUNDRAISING RECEIPTS (Finding 3) 

The DFAR finds that the Conimittee's federal account received $75,800 fiom 10 

fimdraising events. Although the federal account received the funds, the Committee did not share 

in any of the costs incurred in the fundraising. Four of the events were held to benefit a non-federal 

campaign. For the six other events, the auditors did not have sufficient information to conclude 

whether the everits were joint flind^sing events with other political corrunittees or Committee 

. fundraising events solely benefiting the Committee's federal and non-federal accounts. 

In the Interim Audit Report ("lAR"), the Audit staff recommended that the Committee 

demonstrate that it could permissibly deposit the funds totaling $75,800 in its federal account or 

the auditors would consider the funds impermissible funds that should be transferred to the 

Committee's non-federal account. The Committee transferred $75,800 to its non-federal account 

in response to the lAR recommendation. The Committee acknowledged that all of the fundraising 

events were non-fixieral events but contended that the amounts identified in the lAR were 

insubstantial when compared with the total amounts raised through the fundraising events. The 

Committee claimed that it is permissible to deposit in a federal account an "insubstantial" amount 

of funds received through non-federal fundraising events when the coirunittee did not seek those 

contributions. It also argued that neither the allocation rules nor fee joint fundraising rules ate 

triggered when a bona fide rxm-federal fundraisirig event elicits a de minimis number of federal 

contributions. The Committee said, however, that due to limited documentation and to eliminate 

any question of noncompliance, it transferred the $75,800 to the Cormnittee's non-federal account 

We disagree with the Committee's assertions. The Commission has made clear the tj^es 

and sources of funds that may.be deposited in a conimittee's federal account Only contributions 

meeting one or more of the following conditions may be deposited: (1) contributions designated 

for the federal account; (2) contributions that result fiom a solicitation which expressly stated feat 

the contribution would be used in connection wife a federal election; or (3) contributions fiom 

contributors who were infinmed that all contributions were subject to fee prohibitions and 

limitations of fee Act. 11 C.F.R. § 102.5(a)^)(i)-(iii). "The purpose ofthis regulation is to assure 

that funds placed in [the federal] account are ^m contributors who know the intended use of their 

contributions." Explanation and Justification fin- Organizations Financing Political Activity in 

Connection With Federal and Non-Federal Elections, Other Than Throu^ Transfers and Joint 

Fundraisers: Account and Accounting, 67 Fed. Reg.49,073 (July 29,2002). The Committee did 

not show that any of the funds it deposited in its federal account met these criteria. There is no 

exception to the Commission's rules that would permit a de minimis amount of funds, the origins 

of which are either clearly non-federal or cannot be determined, to be deposited in a committee's 

federal account. Although the Committee complied wife the Audit staffs lAR recommendation to 

transfer the $75,800 to its non-federal account, we conclude the Committee's legal assertions are 

without merit. We, therefore, recommend feat the auditors revise the. DFAR to address the 

Committee's assertions on this issue.