SANDLER REIFF 

SANDLER REIFF LAMB ww\r.sandlerieiff.coin 

ROSENSTETN & BIRKENSTOCK, P.C. j. 202-479-1111 

F; 202-479^1115 

December 12.2016 

Mr. Thomas Hintermeister 

Assistant StafT Director 

Audit Division 

Federal Election Commission 

999 E Street, N.W. 

Washington, D-C. 20463 

Dear Mr. Hintermeister; 

This letter will serve as the response of the Hawaii Democratic Party ("HDP") to the 

Interim Audit Report ("JAR") of the Federal Election Commission's Audit Division ("the Audit 

Division") for the period covering the HDP's financial activities for 2011 and 2012. 

The response to each of the Audit Division's seven findings is as follows: 

Finding #1 

The IAR'S first finding involves the misstatement of committee activities for the calendar 

years 2011 and 2012. The conunittee has filed comprehensive amendments to the 2011 and 2012 

reports in accordance with the errors noted in the lAR. Notwithstanding the amendments, it should 

be noted that the HDP does not believe that the State Convention Account should have been 

included in the Commission's finding, as well as in Finding #3. This account was established for 

the sole purpose of administering the HDP's biennial convention. ConuniSsion regulations 

specifically permit state parties to exclusively use non-federal fimds to pay for convention expenses 

and all fonds deposited into this account were used solely for that purpose. The HDP 

acknowledges that some portion of the activity of this account was inadvertently and incorrectly 

included in its federal reports, therefore it has decided to leave this this account in its amended 

reports. However, the inclusion of this account has significant implications for purposes of Finding 

#3 which is discussed below. It should be noted that subsequent to the 2012 convention, the HDP 

has properly pud for convention expenses directly fiom non-federal accounts, and had done so 

previously. It did not intend to diverge from this practice in 2012 but for incorrect inclusion of this 

activity on its federal report 
Finding #2 

The lAR's second finding involves the receipt and refund of two excessive contributions. 

As noted in the lAR the committee has already refunded the excessive portion of these 

contributions. Per the lAR's request, attached as Exhibit A, please find bank documentation 

demonstrating that the refunds have cleared the bank. 

Finding #3 

The lAR's third finding involves the apparent receipt of prohibited contributions. In HDP 

wishes to generally acknowledge that several prohibited contributions appear to have been 

incorrectly deposited into the federal account but specifically comments as follows: 

1) Certain receipts marked as impermissible contributions were actually vendor refunds 

and, if not already disclosed on Line IS, will be moved to Line 15, including: 

a. Ward Research, Inc. - 2/24/16 - $5.00 

b. Friends of Jake Bradshaw - 4/24/12 - $75.00 

A majority of the impermissible contributions identified by the lAR were received in 

connection with the HDP's state convention. These contributions were merely passthrough contributions and were used to underwrite the HDP's state convention. As 

discussed above, the Commission should not require the HDP to reimburse its nonfederal account for these contributions because the money was immediately spent on the 

state convention and the state convention was paid for directly from the state convention 

account. Specifically, the lAR identifies 54 contributions totaling $19,020.50 for the 

convention. As stated above, the HDP did not intend for this account to be a federal 

account and used the account exclusively for expenses related to its state convention.. 

The Commission permits state party committees to pay for its state conventions 

exclusively with non-federal flmds and the HDP was not required to use any federal 

funds to pay for its state convention. 11 C.F.R. § 100.24(c)(3). See Explanation and 

Justification, Prohibited and Excessive Contributions: Non-Federal Funds or Soft 

Money; Final Rule, 67 Fed. Reg. 49064,49070 ("...the activities described in 

paragraphs (c)(1) through (c)(4) of section 100.24, which always may be paid for with 

entirely non-F^eral flmds.") Therefore, the HDP believes that this account should be 

excluded for purposes of any analysis related to misdeposits of contributions. Iii 

addition, the HDP notes that it transferred approximately $56,000 of funds from its 

federal account into this account to cover a shortfall in fundraising for the convention. 

Since these funds were transferred for use for a non-federal purpose, the Commission 

should acknowledge that this transfer further mitigates other misdeposits made by the 

HDP in 2012. 
2} Notwithstanding the above, it should be noted that there were LLC contributions from 

Radciiffe and Associates, LLC, Hoakea Communications, LLC and the Kaopuiki Group 

LLC deposited into the state convention account. The HDP has confirmed Aat all three 

LLC's are taxed as partnerships and were permissible contributions under federal law. 

See documentation attached as Exhibit B. 

3) Included in the state convention contributions were several contributions from 

unregistered candidates for local office. The HDP believes that these committees had 

more than sufficient permissible funds to make a contribution to the HDP under 11 

C.F.R. § 102.5(b)(1). 

4) The lAR identifies additional contributions that appear to be from prohibited sources. 

Please note the following: 

a. The lAR identifies four apparently impermissible contributions totaling S27,000 

that had already subsequently been refunded by the HDP. Attached as Exhibit C 

please find documentation to demonstrate that these refunds have been deposited 

by the donor. 

b. The contributions Diwalt, LLC was from LLC's that have chosen partnership 

taxation. See attached documentation as Exhibit D. 

c. The remaining 10 contributions totaling $ 115,000 have been placed on the 

committee's debt schedule and the funds will be refunded to these donors if and 

when funds become available. However, the Commission should allow the DPH 

to reduce this amount by $56,000 based upon the transfer of federal funds to its 

state convention account. 

Finding #4 

The lAR fourth finding involves the apparent misreporting of vendor debt. In response to 

the lAR, the HDP has amended Schedule D of its reports in accordance with the lAR's 

recommendations. 

Finding #5 

The fifth finding of the lAR involves recordkeeping for payroll and benefits expenses 

disclosed on Schedule H4 of the conunittee's reports. Although the HDP cannot locate the records 

requested in the lAR, the HDP has implemented procedures to ensure that will maintain the 

necessary documentation in connection with payroll and benefit expenses for such expenses 

disclosed on Schedule H4 of its reports. 

Finding #6 

The sixth finding in the lAR involves the apparent failure to disclose certain 

communications as Independent Expenditures within 24 hours of dissemination. The HDP objects 
to the characterization of these communications as independent expenditures and the HDP should 

have disclosed such expenditures as coordinated expenditures on Schedule E of its reports. 

The HDP acknowledges that it did not have enough of the coordinated expenditure 

authority to fund all of the expenditures disclosed as coordinated expenditures. However, the 

combined spending of the HDP and the DSCC did not exceed the combined coordinated 

expenditure limit of $195,200 and the failure to obtain additional authority from the DSCC prior to 

making additional coordinated expenditures was an administrative oversight. Attached as Exhibit 

F, please find a letter from counsel of the DSCC that acknowledges that the DSCC did not use its 

remaining coordinated expenditure authority and would not have objected to a request for the 

transfer of such authority to the HDP. The HDP requests that the Final Audit Report reflect that the 

HDP's spending did not exceed the combined coordinated expenditure limit for die 2012 Hawaii 

Senate election (See Final Audit Report of the Democratic Executive Committee of Florida for the 

2008 Election Cycle, Finding I). 

Finding^? 

The seventh finding of the lAR involves the apparent over transfer of non-federal funds 

during the election cycle in connection with allocable expenses during the 2012 election cycle. In 

response to the lAR, the HDP notes the following: 

1) Attached as Exhibit F, please find a declaration signed by then Chairman, Dante 

Carpenter. In Chairman Carpenter's declaration, he acknowledges that several staff 

payments were made to individuals who worked less than 25% percent of time in a 

given month on activities in cormection with federal elections and federal election 

activities. 

2) Attached as Exhibit G, please find a declaration signed by then Chairman Dante 

Carpenter that asserts that several expenses disallowed by the lAR as allocated expenses 

were, in fact ordinary operating costs. Therefore, the Audit Division should reduce the 

finding of over allocation to include these costs as properly allocable expenditures. 

3) The HDP has amended its reports to move $37,334.70 in expenses disclosed on 

Schedule H4 to Schedule H6. In addition, the HDP has provided schedules L for Levin 

Activity and has moved the necessary portion of allocation transfers to Schedule H5 so 

that these activities are properly disclosed as allocable federal election activity. 

4) The HDP objects to the inclusion of non-federal bank service charges as allocable 

expenses. To our knowledge the Commission has never required such a reading of its 

regulations and these expenses were related to the banking activities of its non-federal 

accounts. To be sure, to require these non-federal expenses be treated as allocable 

expenses for all non-federal bank charges would lead to an automatic violation of 11 

C.F.R. § 106.7(f) which requires allocable expenditures to paid directly from a federal 

account. To state that these are allocable simply makes no sense and the lAR provides 

no justification as to why these expenses should be treated as allocable between federal 

and non-federal funds. 
Based upon the above adjustments, it is the HDP's understanding and belief that there is no 

material over-transfer of non-federal funds in connection with its allocatioii activities for the 2012 

election cycle. 

If you r^uire any further information, or have any other questions, please call me at (202) 

479-1111. 

Neil Reiff 

Counsel to the Hawaii Democratic Party