FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

MEMORANDUM 

August 16, 2012 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Special Counsel to 

the General Counsel 

Lawrence L. Calvert, ^"^/y^y ^ 

Associate General CouMel X_^-^ ^ 

Lorenzo Holloway 

Assistant General Counsel 

For Public Finance and Audit Advice 

Jennifer Waldman^^"^ 

Paralegal Specialist 

SUBJECT: Proposed Interim Audit Report on Dallas County Republican Party (LRA 903) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Interim Audit Report 

("lAR") on the Dallas County Republican Party ("DCRP" or "Committee").' We concur with 

Finding 1 in the proposed lAR (Misstatement of Financial Activity), hi its cover memorandum, 

the Audit Division requested a'lega! analysis of Finding 2 (Recordkeeping for Payroll and Contract 

Labor). 

Finding 2 presents two distinct issues. The first is whether the time log requirement of 11 

C.F.R. § 106.7(d) applies when a committee has paid an employee's salary and benefits costs from 

100% federal funds. We analyze this issue below, consistent with our analysis in several other 

We recommend that the Commission consider this document in Executive Session because the Commission 

may eventually decide to pursue an investigation of matters contained in the proposed lAR. 11 C.F.R. §§ 2.4(a) and 

(b)(6). 
Proposed Interim Audit Report on 

Dallas County Republican Party (LRA 903) 

Page 2 

2010 cycle Title 2 audits. The second is whether work performed by "contract labor" is subject to 

the log requirement. Because the second question raises the important and novel issue of whether 

such work can ever be considered "federal election activity" within the meaning of 2 U.S.C. 

§ 431(20), we are, as you know, preparing a memo to the Commission on that question for 

submission by both our offices pursuant to Commission Directive 69. If you have any questions, 

please contact Jennifer Waldman, the paralegal assigned to this audit. 

II. BACKGROUND 

DCRP's total payroll and contract labor costs paid by its federal and non-federal accounts 

during 2009 and 2010 were $ 190,269. The Committee, however, did not keep a monthly log of the 

percentage of time that each employee spent in connection with a federal election. The specific. 

question addressed in this memorandum has to do with salary and benefits payments to two 

employees. While DCRP reported payments to or on behalf of the employees in different manners 

in different reporting periods, each had at least one reporting period in which their compensation 

was reported either on line 21(b) as an ordinary Federal operating expense paid with 100% Federal 

fimds, or on line 30(b) as federal election activity ("FEA") paid with 100% federal fiinds 

"Committees 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). Section 11 C.F.R. § 106.7(d)(1) 

addresses the allocation of employee salaries, wages, and fringe benefits based on the percentage 

of time that each employee spends on activities in connection with a federal election. Employees 

who spend 25% or less of their compensated time in a given month on federal election activities 

must be paid eitiier from the federal account or have their pay allocated as administrative costs. 

Employees who spend more than 25% of their compensated time in a given month on federal 

election activities must be paid only from the federal account. 11 C.F.R. § 106.7(d)(1). 

III. ANALYSIS 

Part of DCRP's payroll was paid with 100% federal fiinds and reported as Federal 

Election Activity. Previously, the Proposed Interim Audit Report on Mississippi Democratic 

Party Political Action Committee sou^t guidance on whether state party committees must 

maintain a monthly log under 11 C.F.R. § 106.7(d)(1) for employees who are paid from and 

reported as solely 100% federal funds. See Proposed Interim Audit Report on Mississippi 

Democratic Party Political Action Committee Legal Comments, Aug. 1,2012. We reiterate the 

advice on this issue that we provided in the context of the Mississippi Democratic Party audit. 

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 employees who are 

paid from and reported as solely 100% federal funds. The regulations require a state party 

committee to keep a log of the percentages of time that each employee spends in connection with 

an election. 11 C.F.R. § 106.7(d)(1); Although 100% ofthe time on federal activity represents the 

whole or complete time on federal activity, this is still a percentage. 
Proposed Interim Audit Report on 

Dallas County Republican Party (LRA 903) 

Page 3 

Whether the Audit Division should pursue findings of this nature, however, raises practical 

questions. Section 106.7(d) works in support of 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 USC §§ 43 l(20)(A)(iv), 441i(b)(l). In 

this case, some of the employees were paid with 100% federal funds. The only significance the log 

could play under those circumstances would be to identify those 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 fimds. 

Because the salaries and benefits of such employees are not "federal election activity," they would 

not be reported as such on line 30(b) of the Detailed Summary Page, but would instead be reported 

as Federal operated expenses on line 21(b). 11 C.F.R. § 106.7(d)(1); see 11 C.F.R. §§ 

104.14(b)(1) and 104.17(a)(4), or as payments for allocable operating expenses on line 21(a) and 

on Schedule H4.^ If the Audit Division believes that logs (or the equivalent substitute) are needed 

to verify this reported information, then you should consider whether a recordkeeping finding or a 

limitation on the scope of the audit is appropriate. 

We provide these comments, however, recognizing the Commission's 3-3 split on a similar 

issue in the Georgia Federal Elections Committee ("GFEC") 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 issues of whether the Conmiission could require a committee to keep a 

log for such employees, notwithstanding that zero (as well as 100) is a percentage. For the GFEC 

employees, presumably, there would be considerably more reason to require the log, to ensure that 

their salaries are properly paid with 100% non-federal funds. Nevertheless, 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 GFEC, considered in Open Session, Mar. 3, 2011). 

Here, unlike with GFEC, the payments at issue were made with 100% federal funds, so the 

Commissioners' concem over "solely non-federal" activity may be reduced. Nevertheless, given 

that there is some uncertainty on a related issue, we recommend that you raise this issue in the 

memorandum that forwards the report to the Commission. 

^ According to the Reports Analysis Division ("RAD"), if a committee asked RAD how to disclose payroll that 

could be allocated with shared federal/non-federal funds, but was paid with 100% federal funds, RAD would advise 

them to disclose it on Schedule 6 as a 100% federal operating expense. However, if the committee opted to disclose 

the expense as allocated on Schedule H4, RAD would consider that acceptable. RAD explained that there is no 

requirement to reimburse the federal account the non-federal share and some conunittees that initially disclose 

expenses as allocated later decide they do want to reimburse the federal account the non-federal share.