fXGEIYED 

FtOcRAL 

FEDERAL ELECTION COMMISSION 

WASHINCTON. D.C. 2Mh \ 

ELECTIO!! 

COMHISSION 

SECRETARIAT 

201? OCT 23 PH3:59 

October 23, 2012 

MEMORANDUM 

TO: 

FROM: 

SENSITIVE 

The Commission 

Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway ^^/ly i 

Assistant General Counsel 8 

For Public Finance and Audit Advice 

Margaret J. Forman nvi 

Attomey 

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 behallf 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 Pany PAC, the Massachuseas,Detnocratic State 

Committee - Fed. FundJ 

At least two Commissioners agreed to consider ihis Request pursuant to the Policy 

Statement Regarding a Program for Requesting Consideration of Legal Questions by the Commission, 76 Fed. Reg. 

4S798-4S799(Aug. I 2011). 

The Conunission'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 OfHce 

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 fimds, the soft money concems 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 sufficiehtly important to 

require a recordkeeping finding where no logs (or affidavits) are available is a matter of policy for 

the Commission to determine. 

II. 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 detertnine 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 fi-om a federal account. 2 U.S.C. § 431 (20)(A)(iv); 11 C.F.R. 

§ 106.7(d)(l)(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)(l)(i). Employees who spend none of their 

compensated time on FEA or activities in connection with a federal election may be paid entirely 

with fiinds that comply with state law. 11 C.F.R. §§ 106.7(c)(1) and 106.7(d)(l)(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 fmding." Attachment at 2. The Committees, 

however, object to "any finding that employees who wefe paid exclusively with federal funds 

required any entry in a time log." Id. 

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 fi-om 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' concem 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), 

441 i(b)(l). Where employees are paid with 100% federal funds, there is by definition no concem 
Memorandum to the Commission 

Request for Consideration of a Legal Question (LRA 917) 

Pages 

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 situe^tion 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 - fi'om 

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 ofthe 

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% 

fedefal 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 fimds.^ 

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 

We recognize the Commission's 3-3 split on a similar issue in the Georgia Federal Elections Conunittee 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 Conunittee, a number of the employees of each ofthe 

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* concems regarding jurisdiction over 

"solely non-federal" activity may be reduced. 

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 ftinds, 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), 441 i(b)( 1). 
Memorandum to the Conunission 

Request for Consideration of a Legal Question (LRA 917) 

Page 4 

paid with 100% federal fiinds. 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 (Jyl. 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." Id. 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 coimection with a Federal election." Id. 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 tinder (d)(l)(i) or 

(ii), allocation between federal and non-federal under (d)(I)(i), and paid with 100% state fiinds 

under (d)(l)(iii). The Committees fail to explain how the language ofthe 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 Federai 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 Conunittees 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) lo 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. 

' In the audit of the Georgia Federal Elections Committee, the Conunission split on whether that committee 

was required to keep a log. See supra note 2. 
Memorandum to the Conunission 

Request for Consideration of a Legal Question (LRA 917) 

Page 5 

The Commission, as an administrative agency charged with administering jlhe Federal 

Election Campaign Act, has discretion in deciding which matters of non-complian|ce 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 povjrer 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). 

IIL RECOMMENDATION 

The Ofiice 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 fiinds. 

Attachment 

Request for Legal Consideration fix)m Neil Reiff, as counsel representing the Misjsissippi 

Democratic Party PAC, the Massachusetts Democratic State Committee-'Fed. Fund,|