Memorandum to the Commission
Request for Consideration of a Legal Question (LRA 917)
Page 5

The Commission, as an administrative agency charged with administering the Federal
Election Campaign Act, has discretion in deciding which matters of non-compliance will be
findings in its audit reports. Cf. Nader v. FEC, 823 F. Supp. 2d 53, 65 (D.D.C. 2011); Akins v.
FEC, 736 F. Supp. 2d 9, 21 (D.D.C. 2010) (“The FEC has broad discretionary power in
determining whether to investigate a claim, and whether to pursue civil enforcement under the
[FECA].”); see also Heckler v. Chaney, 470 U.S. 821, 831 (1985).

Ill. RECOMMENDATION

The Office of the General Counsel recommends that the Commission conclude that
11 C.F.R. § 106.7(d)(1) requires the Committees to keep a monthly log for employees paid
exclusively with federal funds.

Attachment

Request for Legal Consideration from Neil Reiff, as counsel representing the Mississippi
Democratic Party PAC,



Memorandum to the Commission
Request for Consideration of a Legal Question (LRA 917)
Page 4

paid with 100% federal funds. Rather, as the Commission explained, the proposed regulation at
300.33(b)(1) would have required state party committees to keep detailed time records for all
employees to provide documentation for allocation purposes. Prohibited and Excessive
Contributions: Non-Federal Funds or Soft Money, 67 Fed. Reg. 49064, 49078 (Jul. 29, 2002).
The Commission rejected the original proposed provision because it chose not to allocate
employee salary, noting ‘‘in response to the NPRM, a State party committee asserted that time
sheets would be ‘burdensome,’ that written certifications by employees would be ‘equally
impractical,’ but that a tally sheet kept by the employer would be ‘more reasonable.’ The same
commenter nonetheless urged the Commission not to require any particular method of
documentation.” /d. The Commission, acknowledging the reasons provided by the commenters,
decided to “require[] only that a monthly log be kept of the percentage of time each employee
spends in connection with a Federal election.” Jd. Thus, the Commission chose a recordkeeping
requirement in the form of a monthly log as a lesser burden than the detailed time records as part of
an allocation formula.

Nothing in the Commission’s explanation for this requirement indicates that the
Commission’s change in the location of the recordkeeping requirement or change from the plural
“all employees” to the singular “each employee” excludes employees paid with 100% federal
funds. To the contrary, the subparagraphs of the regulatory provision imposing a monthly log
requirement anticipate three allocation scenarios — paid with 100% federal funds under (d)(1)(i) or
(ii), allocation between federal and non-federal under (d)(1)(i), and paid with 100% state funds
under (d)(1)(iii). The Committees fail to explain how the language of the regulation, or its drafting
history, supports imposing a monthly log requirement in the latter two scenarios but somehow
excludes the first scenario where employees are paid with 100% federal funds.

The Committees also assert that the proposed finding is inconsistent with the
Commission’s approach in prior audits in other election cycles.’ The Committee cites the 2006
audit of the Georgia Federal Elections Committee, and the 2006 Audit of the Tennessee
Republican Party Federal Election Account as examples of audits where no recordkeeping finding
was addressed for failure to maintain a log pursuant to section 106.7(d)(1). The Committees are
correct about the findings in those prior audits — the Commission did not pursue a separate
recordkeeping finding under section 106.7(d)(1), regardless of whether those committees
maintained the logs.°

‘ The Committees suggests that the Commission should provide the regulated community with advance notice

of its decision to apply the requirements of 11 C.F.R. § 106.7(d)(1) to employees paid with 100% federal funds. We
do not believe there is a notice issue because nothing in section 106.7(d)(1) addresses a different category of
employees for which committees would not be required to keep a log.

5 In the audit of the Georgia Federal Elections Committee, the Commission split on whether that committee
was required to keep a log. See supra note 2.


RECEIVED
FEGERAL ELECTION
COMMISSION
SECRETARIAT

FEDERAL ELECTION COMMISSION 20120CT 23 PM 3:59

WASHINGTON, D.C. 20463

October 23, 2012
SENSITIVE

MEMORANDUM
TO: The Commission

FROM: Lisa J. Stevenson lf
Deputy General Counsel - Law

Lorenzo Holloway uy), ‘
Assistant General Counsel ig
For Public Finance and Audit Advice

Margaret J. Forman M43
Attorney

SUBJECT: Request for Consideration of a Legal Question (LRA 917)

I. INTRODUCTION

On September 28, 2012, the Commission received a Request for Consideration of a Legal
Question (“Request”) from counsel on behalf of eight state party committees that the Commission
voted to audit pursuant to 2 U.S.C. § 438(b).' Attachment.

The Request addresses a proposed audit finding for each of the Committees pertaining to
the requirement in 11 C.F.R. § 106.7(d)(1) that state party committees maintain monthly payroll
logs of the percentage of time each employee spends in connection with a federal election. The
issue presented in the Request is whether the monthly time log requirement applies to employees

The eight committees are: the Mississippi Democratic Party PAC,

t least two Commissioners agreed to consider this Request pursuant to the Policy
Statement Regarding a Program for Requesting Consideration of Legal Questions by the Commission, 76 Fed. Reg.
45798-45799 (Aug. 1 2011).

The Commission’s action on this Request affects a total of 13 state party committees. The Commission has
also received another request regarding this issue, which will be addressed in a separate memorandum from the Office
of General Counsel.


Memorandum to the Commission
Request for Consideration of a Legal Question (LRA 917)
Page 2

who are paid with 100% federal funds. We conclude that under the literal language of the
regulation, it does. But there is a separate question, as a prudential matter, of whether the
Commission wishes to pursue recordkeeping findings in these circumstances. Where employees
are paid with 100% federal funds, the soft money concerns underlying the regulations are absent.
The only significance a log could have in these circumstances is verifying whether the disclosure
of disbursements is on the correct line on the Detailed Summary Page of a committee’s disclosure
reports. The Audit Division submits that it needs the logs for this purpose and a recordkeeping
finding is appropriate. Whether the Commission believes this purpose is sufficiently important to
require a recordkeeping finding where no logs (or affidavits) are available is a matter of policy for
the Commission to determine.

Il. COMMITTEES ARE REQUIRED TO KEEP MONTHLY LOGS FOR
EMPLOYEES PAID EXCLUSIVELY WITH FEDERAL FUNDS

A state party committee “must keep a monthly log of the percentage of time each employee
spends in connection with a Federal election.” 11 C.F.R. § 106.7(d)(1). To determine if a state
party committee must allocate the salary, wages, and benefits of its employees, it must examine the
percentage of time that its employees spent on federal election activity (“FEA”) or activity in
connection with federal elections. Salaries and benefits for employees who spend more than 25%
of their compensated time on FEA or activities in connection with a federal election in a given
month must be paid only from a federal account. 2 U.S.C. § 431(20)(A)(iv); 11 C.F.R.

§ 106.7(d)(1)(ii); see 2 U.S.C. § 441i(b)(2). Employees who spend less than 25% of their time on
FEA or activities in connection with a federal election may be allocated as administrative costs or
paid from the federal account. 11 C.F.R. § 106.7(d)(1)(i). Employees who spend none of their
compensated time on FEA or activities in connection with a federal election may be paid entirely
with funds that comply with state law. 11 C.F.R. §§106.7(c)(1) and 106.7(d)(1)(iii). The
Committees concede that failure to keep logs for employees “who were paid either in part or with
no federal funds would support a recordkeeping finding.” Attachment at 2. The Committees,
however, object to “any finding that employees who were paid exclusively with federal funds
required any entry in a time log.” Jd.

We conclude that, read literally, the regulations support the conclusion that state party
committees must maintain a monthly log under 11 C.F.R. § 106.7(d)(1) for all employees,
including those paid from and reported as solely 100% federal funds. Although 100% of the time
spent on federal activity represents the whole or complete time spent on federal activity, this is still
a percentage and therefore must be documented.

We understand the Committees’ concern about the necessity for a log when employees are
paid with 100% of federal funds. Section 106.7(d) supports the statute’s requirement that state and
local party committees treat as “federal election activity,” payable with 100% federal funds, the
salaries and benefits of any employee who spends more than 25% of his or her compensated time
during the month on activities in connection with a federal election. 2 U.S.C. §§ 431(20)(A)(iv),
441i(b)(1). Where employees are paid with 100% federal funds, there is by definition no concern


Memorandum to the Commission
Request for Consideration of a Legal Question (LRA 917)
Page 3

that an inadequate share of federal funds was used to pay these employees.” Thus, the Committees
might question why the Audit Division would inquire about time logs in this situation and, in the
absence of such logs, impose a recordkeeping finding

The additional purpose served by the logs is to differentiate salary and benefits payments
that qualify as FEA — which are reported on line 30(b) of the Detailed Summary Page — from
payments to employees who spent less than 25% of their compensated time during a month on
activities in connection with a federal election, but whose salaries and benefits the Committee
voluntarily chose to pay with 100% federal funds. Payments in this latter category should be
reported as federal operating expenses on line 21(b) of the Detailed Summary Page, not as FEA.
See 11 C.F.R. §§ 104.14(b)(1), 104.17(a)(4). In these audits, it appears that many of the
Committees recognized this distinction because a number of the Committees reported payroll
payments as other federal operating expenditures on Schedule B, line 21b. The Audit Division
submits that it needs the logs to verify that the salary and benefit payments at issue have been
disclosed on the correct lines of the Detailed Summary Page. See 11.CF.R. § 104.14(b)(1).

In support of their assertion that a log is not required for employees that are paid with 100%
fedetal funds, the Committees cite a proposed regulation which was never promulgated, which
provided: “Committees must keep time records for all employees for purposes of determining the
percentage of time spent on activities in connection with a Federal election.” Prohibited and
Excessive Contributions; Non-Federal Funds or Soft Money, 67 Fed. Reg. 35654, 35684 (May 20,
2002) (Proposed section 300.33(b)(1)). The Committees apparently assert that the fact that the
Commission (1) moved the recordkeeping requirement from proposed section 300.33 to section
106.7; and (2) changed the words “all employees” in the proposed provision to “each employee,”
in 11 C.F.R. § 106.7(d)(1), signifies that the monthly log requirement excludes employees paid
with 100% federal funds.*

There is no indication in the regulatory history that the Commission moved this proposed
provision into section 106.7 and changed the language because it intended to exclude employees

2 We recognize the Commission’s 3-3 split on a similar issue in the Georgia Federal Elections Committee audit

involving employees whom the committee asserted spent no time on activity in connection with federal elections. In
that audit, the Commission split on the issue of whether the Commission could require a committee to keep a log for
such employees. In a motion that failed 3-3, three Commissioners asserted that “the Commission does not have
jurisdiction to impose recordkeeping and documentation requirements on employee activity that a State party
committee claims is solely non-Federal.” See Commission Agenda Document No. 11-10-B (Motion on Audit
Division Recommendation memorandum on the Georgia Federal Elections Committee, considered in Open Session
Mar. 3, 2011). Here, unlike with the Georgia Federal Elections Committee, a number of the employees of each of the
Committees may have spent 100%, or some part thereof, of their time on activities in connection with a federal
election and were paid with 100% federal funds, so the three Commissioners’ concerns regarding jurisdiction over
“solely non-federal” activity may be reduced.

3 In their Request, the Committees appear to assert that section 106.7 applies to the allocation of expenses, and
not to Federal Election Activities (FEA). We reiterate that section 106.7 supports the statute’s requirement that state
and local party committees treat as “federal election activity,” payable with 100% federal funds, the salaries and
benefits of any employee who spends more than 25% of his or her compensated time during the month on activities in
connection with a federal election. 2 U.S.C. §§ 431(20)(A)(iv), 441i(b)(1).