Draft Final Audit Report of the 

Audit Division on the Hawaii 

Democratic Party 

(January 1, 2011 - December 31, 2012) 

Why the Audit Was 

Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any political 

committee that is required to 

file reports under the Federal 

Election Campaign Act (the 

Act). The Commission 

generally conducts such 

audits when a committee 

appears not to have met the 

threshold requirements for 

substantial compliance with 

the Act.' The audit 

determines whether the 

conunittee complied wit 

limitations, prohibitio"* 

disclosure requiremedis 

the Act. 

FutureJ^tion 

The Cop^^ • m may in 

an enforcei '... tion, at a 

later time, wii: ,-jvct to any'• 

of the matters dis. in 

this report. ^ 

About the Committee (p. 2) 

The Hawaii Democratic Party^ is a state party committee 

headquartered in Honolulu, Hawa" ^ "^or more information, see 

the chart on the Conunittee org|^)!».ti^, p. 2. 

Financial Activity- ^ 

• Receipts ^ 

o Contributions • Jndividua"-

o Contribut^p from Party and 

Politic^jdl^i nittee^ 

o Transfers :^l| I .\-

o Loans Receivi .1 

o'iTi insfers froi •'.•..leral and 

1I'. I luids . 

'a- . r O «»•.. •:<JVC..--

Total ^|cei|ii> 

* Disburseq^ts w 

Operati^ Expenditures 

> Coordin^^Partv Expenditures 

* ' Rq^^ments Made 

o "faS^^of Contributions 

S 

Other Disbursements 

"ideral Election Activity 

'1 Ilia! Disbursements 

• Levin Receipts 

• Levin Disbursements 

$ 210,653 

290,032 

111,387 

30,000 

122,196 

563,137 

$1,327,405 

$ 621,546 

129,725 

10,000 

20,227 

247,249 

272,159 

$1,300,906 

$23,564 

$23,564 

Findings and Recommendations (p. 4) 

• Misstatement of Financial Activity (Finding 1) 

• Receipt of Contributions that Exceed Limits (Finding 2) 

• Receipt of Apparent Impermissible Funds (Finding 3) 

• Reporting of Debts and Obligations (Finding 4) 

• Recordkeeping for Employees (Finding 5) 

• Failure to Properly Report Media Related Expenditures 

(Finding 6) 

• Allocation of Expenditures (Finding 7) 

' 52U.S.C. §30111(b). 

' On October 4,2016, the Hawaii Democratic Party changed its name to the Democratic Party of Hawaii. 
Draft Final Audit Report of the Audit 

Division on the 

Hawaii Democratic Party 

(January 1, 2011 - December 31, 2012) 

< 

\ 

• 

\ 

V 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Commission Guidance 1 

Part n. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity ^ 3 

Part III. Summaries • 

Findings and Recommendations /v 4 

. A 

Part IV. Findings and Recommend^ioim 

Finding 1. Misstatement of Financial Activity -.7 

Finding 2. Receipt of Contributions that Excj'• i i" s ^ ^ r 

Findings. Receipt of Apparent Impermissible F-V. I .r\ 4 13 

Finding 4. Reporting of Debts and Obligations ' ^ 19 

Finding 5. Recordkeeping for Empld*.. - 21 

Finding 6. Failure to Properly Repor NL-.i-.. U.-lated ExpCS.- i 22 

Finding?. Allocation of Expenditures % " 28 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Hawaii Democratic Party (HDP), undertaken by the Audit 

Division of the Federal Election Commission (the Commission) in accordance with the Federal 

Election Campaign Act of 1971, as amended (the Act). The Audit Division conducted the audit 

pursuant to 52 U.S.C. §30111(b), which permits the Commission to conduct audits and field 

investigations of any political committee that is required to file a repo<>^ <inder 52 U.S.C. §30104. 

Prior to conducting any audit under this subsection, the Conunissi^nult^perform an internal 

review of reports filed by selected conunittees to determine if tli.-:'orts filed by a particular 

committee meet the threshold requirements for substantial c>>- f:- -^ ith the Act. 52 U.S.C. 

§30111(b). ^ ^ 

Scope of Audit , ^ 

Following Commission-approved procedures, th§^. h* staff ^ • .li aated vari. - tractors and 

as a result, this audit examined; V ^ ^ 

1. the receipt of excessive contributions and loans; 

2. the receipt ofcontributions from proli '-^ jd sources; '• 

3. the disclosure of contributions receiv.-. ^ • /v 

4. the disclosure of disbursements, debt- .'1.-1-l;^i!'.--is; 

5. the disclosure of expenses allocated betw^ 1 nnr^-^i.-.ieral accounts; 

6. the consistency between figures ^ NHBC re^^^.. 

7. the completeness of * 

8. the disclosure of in^^^dent -uditures; 

9. other committee drcl^n nec. - - iry to the: 

_ \ . Commi^on Guidance -

Request Im'l arly Coiniiii««riiii Consiii^tion of a Legal Question 

Pursuant to • % i .-inmission olicy^ratement Establishing a Program for Requesting 

Consideration -i'. Quest by the Commission," several state party committees 

unaffiliated with IID!' - jquest||^early consideration of a legal question raised during audits 

covering the 2010 e ' q^le. Specifically, the Commission addressed whether monthly time 

logs under 11 CFR § 1 „„^(1) were required for employees paid with 100 percent federal 

funds. 

The Commission concluded, by a vote of 5-1, that 11 CFR § 106.7(d)(1) does require committees 

to keep a monthly log for employees paid exclusively with federal funds. Exercising its 

prosecutorial discretion, however, the Commission decided it will not pursue recordkeeping 

violations for the failure to keep time logs or to provide affidavits to account for employee 

salaries paid with 100 percent federal funds and reported as such. The Audit staff informed HDP 

representatives of the payroll requirement and the Commission's decision not to pursue 

recordkeeping violations for failure to keep payroll logs for salaries paid and correctly reported 

as 100 percent federal. This audit report does not include any findings or recommendations with 

respect to HDP employees paid with 100 percent federal funds and reported as such. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration December 17,1986 

e Audit Coverage January 1,20J1 - December 31,2012 

Headquarters Honolulu 

Bank Information > 

e Bank Depositories On^ 

e Bank Accounts ^iHlFederaH^ Three Non-Federal 

Treasurer ^ 

• Treasurer When Audit Was Conducted < ^ Yuriko J. Sugi- • *0/94-08/20/14); 

4 FloreW Kong Kee • ••x ".0^4 - 07/09/16); 

1 . -.blRfcung (07/Cv^t» - Present) 

• Treasurer During Period Covered by Audit i:: :\o J. Sugimura 

Management Information ^ 

e Attended Commission Camoaien Finani\ >.%iynar Yes 

e Who Handled Accounting and Reco: 

Tasks dSta^ 

• 

/ 

• *' 
Overview of Financial Activity 

(Audited Amounts) 

Click here to enter a date. 

Cash-on-hand ® January 1,2011 $ 8365 

Receipts 

o Contributions from Individuals 210,653 

o Contributions from Party and Political Committees 290,032 

o Transfers from Affrliates 111,387 

o Loans Received Ai. 30,000 

o Transfers from Non-federal and Levin Funds . . ^ 122,196 

o Other Receipts J, - 563,137 

Total Receipts d. S 1327,405 

Disbursements ... 

o Operating Expenditures jt IT- ^ '-•«! •'46 

o Coordinated Party Expenditures ^ 

o Loan Repayments Made 4 ^ V ' 

o Refunds of Contributions 

o Other Disbursements 247,24y 

0 Federal Election Activity ~ . 

1 Ota! Disbursements ^ 

• 272.159 

^ S 1300,906 

Cash-on-hand (SI December 31,2012 It. 

% 

L S S34.864 

Levin Cash-on-hand (SI OctcdSSP^I. 2012 w SO 

Total Levin Receipts ^ ^ 23,564 

Total Levin Disbursem>-ijJ* v t 23,564 

Levin Casb-on-hand @ Dtci-mlu rTi, 21) 12 

. 

S 0 • / 

r 

> 
Part 111 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of HDP's bank activity v^th its most recent 

amended reports filed prior to the audit revealed material misstate-^ents in both 2011 and 

2012. In response to the Interim Audit Report (lAR) recommeg^n^ HDP filed 

amended disclosure reports for 2011 and 2012 which mater^ li v ..orrected the 

misstatements. Also, in response to the lAR recommen^.<'r| III )l' Counsel (Counsel) 

stated that HDP did not believe the Convention Acco^pfmA) si .'-.'..i be included in the 

misstatement finding. ^ 

After consideration of Counsel's response an^; -itiot^th our Of( K-I >:al 

Counsel, the Audit staff determined, based on a\ -• c in^^tion, that ttj ( V is not a 

federal account since its activity is non-federal. Con^g^mntly^e Audit staff excluded 

the CA and its activity from the misstatement finding cf^'~tion. However, since HDP 

originally disclosed the CA activity 0- "l.j.i ederalrepi ^e beginning cash for 201P 

and receipts and disbursements for 2(''." -i. ' er mi--" . -i." need to be corrected. 

The Audit staff recommends that HDP a^nv... ire r^:- <rts to correct the 

misstatements and reconcile its cash bal 

In addition, a comppf^n of J ' s bank ac^^ with its original reports filed for 2011 

and 2012 also reve .. • latei I nisstatemem .-."disbursement activity. HDP made no 

comments in its respoi -. ' no f^: .-r action is required. The removal of 

the CA and »•:!•" v re.«-.«:». - iB^he finding. (For more detail, see p. 7) 

Finding 2. Receipt of Contributions that Exceed Limits 

During a.^-ii .ieldwork, ^udit . identified contributions from two political action 

committi-/- _ exceeded U|| limifation by $20,000. Both of the excessive contributions 

were untimei nded. IMwever, documentation was not provided to demonstrate that 

one refund totaffl * -,OOQ^d cleared the bank. In response to the lAR 

recommendation, Xprovided documentation demonstrating the refund for $S,000 

had cleared the banl^ne Audit staff concludes that HDP untimely resolved excessive 

contributions totaling $20,000. (For more detail, see p. 11) 

Finding 3. Receipt of Apparent Impermissible Funds 

During audit fieldwork, the Audit staff identified 75 receipts, totaling $169,586, 

deposited into HDP's federal accounts during 2012 that appeared to be from 

impermissible sources. In response to the lAR recommendation, HDP Counsel stated 

^ The beginning cash misstatement amount flows through to cause an additional misstatement in ending 

cash for 2011 and beginning cash for 2012. 
that a majority of the impermissible contributions were received in connection with 

HDP's state convention; and therefore, Counsel believes that the CA should be removed 

from the impermissible funds analysis. Counsel stated that state convention activity 

should not be considered federal activity. Also, Counsel believes that amounts 

transferred from HDP's federal account* to its CA for non-federal purposes (convention 

fimdraising) should mitigate other impermissible fruids. In addition, HDP showed that 

$5,080 of receipts were permissible, $27,000 of receipts were imtimely refunded, and 

filed amended reports for $115,000 of impermissible receipts from corporations on 

Schedule D (Debts and Obligations). 

After consideration of Counsel's response and consultation withj^Office of General 

Counsel, the Audit staff determined, based on available infortg^Hon^at the CA is not a 

federal account since its activity is non-federal. Consequen ^Audit staff concluded 

that $22,006 in receipts deposited into the CA were not i^^i and excluded this 

amount from the finding. In addition, the calculated aaio^ of .: ssible 

contributions was reduced by $10,959 for transfe^r within app:.»:- ' j timeframes 

from one of the federal accounts to the CA leavu^rm impermissible bar^\^- t-f 

$104,451. / 

The Audit staff recommends that HDP file an amend ' ort to reduce the debt amount 

for impermissible receipts on Schedifl^- D to $ 104,541. i. he Audit staff recommends 

that HDP provide documentation thai -••• iit w the Auai p determine if and to 

what extent impermissible receipts wei» • . .-i .-. n with - ral election. (For more 

detail, seep. 13) \ ^ 

Finding 4. Reid>rtingj|pf Deb^and oSligations 

During audit field^is^ -'le At^^stafr identi^^^bts and obligations from 17 vendors, 

totaling $115,967, wl :t I .-re •. -lized or under reported on Schedules D 

(Debts and Oblieations) Ir • -•'-"f ' ' R recommendation, HDP filed amended 

disclosur^i'.».i« I.- . •=1" -it- " 12 corteSHy reporting and disclosing these debts and 

oblig!'''"-'^on Schecn " (Ii' f-e detail, see p. 19) 

Findil^ 5. Recordkeepiag for Employees 

During auc • ' "work, th idit staff determined that HDP did not maintain any 

monthly payi , as rypfired, to document the percentage of time each employee 

spent in coimecl • "federal election. For 2011 and 2012, the Audit staff identified 

payments to HDP ti^i^^ees totaling $60,923 for which HDP did not maintain monthly 

payroll logs. This c^sisted of $48,510 for which payroll was allocated between federal 

and non-federal funds, and $12,413 for which payroll was exclusively paid with nonfederal funds. The lAR recommended payroll logs be provided or in their absence that a 

plan be implemented to maintain payroll logs in the future. Counsel stated that the 

payroll logs could not be located but that HDP has implemented procedures to maintain 

the necessary documentation for payroll. (For more detail, see p. 21) 

' There were two federal accounts that made transfers to the CA. 
Finding 6. Failure to Properly Report Media Related 

Expenditures 

During audit fieldwork, the Audit staff identified disbursements totaling $30,148, which 

appeared to be media related independent expenditures requiring disclosure on Schedule 

E (Itemized Independent Expenditures), that HDP disclosed on Schedule B, Line 30b 

(Federal Election Activity) and Schedule F (Coordinated Party Expenditures). Of the 

$30,148, HDP did not file the required 24-hour reports for those items that should have 

been reported on Schedule E totaling $29,725. 

In response to the IAR recommendation. Counsel stated these 

coordinated (and amended reports were filed showing these 

on Schedule F) and not independent expenditures. Coun; 

expenditures exceeded HDP's coordinated expenditure 

result of an administrative oversight, a failure to co: 

Campaign Committee (DSCC) to obtain a higher^^^diiii 

As a result of HDP's response to the lAR rec^u..^^tio! 

HDP made coordinated expenditures totaling $129^^ 

spending authority for $102,600. Th^fore, HDP ex 

$27,125. The Audit Staff recommena-11:):' -.-.ek a 

the excessive amount. (For more deta 

iture were 

ture as coordinated 

hat, although the 

occurred as a 

•. Senatorial 

authority. 

Audit stal; .iciv uned 

only had coord^ated 

its spending limit by 

- 1 Hirono for Congress for 

* 

itures 

ents m. .\- "om the federal and nonoveidiinding of activity in the amount 

Finding 7. Allocation of: 

During audit fieldwork^d^ w of disbi 

federal accounts idei^ed ani^^rent non-f 

of $82,722. In resj*.' i-. • • the recommenTl:-''.)n, HDP filed amended reports and 

submitted additional df. l u-1 .• ertain i,venditures. Based on the new 

documenta-\-i- S \udi -:.!•• •-•vi . .^^ation and concludes the non-federal 

accountnt^: .> .<i „•! 'ithi il account. (For more detail, see p. 28) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of HDP's bank activity withdts most recent 

amended reports filed prior to the audit revealed material misst^..wf^s in both 2011 and 

2012. In response to the Interim Audit Report (lAR) recon -.i.-i .1 ition, HDP filed 

amended disclosure reports for 2011 and 2012 which maM:-• arrected the 

misstatements. Also, in response to the lAR recommenc^on, I !l)l' ( .-unsel (Counsel) 

stated that HDP did not believe the Convention ACM^^^) shoi:.! K-' .eluded in the 

misstatement finding. 

After consideration of Counsel's response anb coi.- -i! tiodpiji^ our Office^ Ueneral 

Counsel, the Audit staff determined, based on ava • ormation, that the CA is not a 

federal account since its activity is non-federal. Cons.. ly, the Audit staff excluded 

the CA and its activity from the missi •'.-•i ' finding caicci '' n. However, since HDP 

originally disclosed the CA activity on reports, mwfetfSinnine cash for 2011^ 

and receipts and disbursements for 2012werera^- • isstat^^d need to be corrected. 

The Audit staff recommends that HDP aniimd^ .• -. n-^^eports to correct the 

misstatements and re^ " ^h balanc^^ 

In addition, a comj- off . ii's bank acti^ * ;idth its original reports filed for 2011 

and 2012 also revealec nenl ;• .lisbursement activity. HDP made no 

comments r. «:-.'nse :• il. . -ui oHc^^pirther action is required. The removal of 

the CA a^ •». ih portion of the finding. 

Legul Slandard 

Conteni^ n^eports. Ei eporfmust disclose: 

• The amou^ cash-on ! .md at the beginning and end of the reporting period; 

• The total; pts for the reporting period and for the calendar year; 

• The total amou^^^bursements for the reporting period and for the calendar year; 

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 52 U.S.C. §30104(b)(l), (2), (3), (4) and (5). 

' See footnote 3. 
Facts and Analysis 

A. Misstatement of Financial Activity- Most Recent Reports Filed Prior to the 

Audit 

1. Facts 

The Audit staff reconciled HDP's reported financial activity with its bank records for 

calendar years 2011 and 2012. The following charts outline the discrepancies 

between HDP's disclosure reports and its bank records. The succeeding paragraphs 

explain why the discrepancies occurred. 

2011 Committee Activity ^ 1 

Reported Ba^i'ti-i-^riN 1. Discrepancy 

Beginning Cash-on-Hand @ 

January 1,2011 

$ 44,653 . 8, $36,288 

^ > . Overstated 

Receipts $282,712 '$295,136 

J v 

^ $12,424 

I- .:»:^-#Stated 

Disbursements $278,375 4^,981 -12,606 

Understated 

Ending Cash-on-Hand @ 

December 31,2011 

48,990 « 12,520 • » $36,470 

Overstated 

'88 aiH^the discrepancy is 

>.! .'iMiSlSancies. 

The beginning cash-on-hand was ov 

unexplained, but likelv j:esulted from 

A « 

The understate- •>-'1 •)f recei^ resulted ff^ the following: 

• Unreported • Wy conditions® y $12,156 

• Return deposit i-.-. -.- '^'®*^"';;^ents 

in-iilTTTi Ii\ .* :• v on JSCBBipie' A (50) 

• ^.»:xpiained«Wteren." 318 

^ 'Ai t Understauiu^t of Ki-tci^s $12.424 

The u-'..- 'ement ofi": -burs^ents resulted from the following: 

• Unrt, ^ -n-kindx-i-ntributions' $12,156 

• Disburstw, »•«='!--/ffeported 4,890 

• Disbursem >rted but not in bank activity (4,269) 

• Disbursemen^mounts reported incorrectly 157 

• Return deposit items reported as disbursements 

instead of a negative entry on Schedule A (50) 

' All unreported in-kind contribution discrepancies during calendar years 2011 and 2012 were for 

disbursements paid by the Democratic National Committee (DNC) on behalf of HDP for voter file 

updates and maintenance. The DNC reported these transactions as in-kind contributions made to HDP. 

To help assure the correct cash balance is reported, these amounts should be disclosed as in-kind 

contributions on Schedules A and B. 

' See footnote 6. 
Unexplained difference 

Net Understatement of Disbursements 

(im 

mm 

The overstatement of $36,470 of the ending cash-on-hand was a result of the 

reporting discrepancies described above. 

2012 Committee Activity 

Reported Bank Records Discrepancy 

Begirming Cash-on-Hand @ 

January 1,2012 

$ 48,990 $ 12,520 $ 36,470 

Overstated 

Receipts $875,660 $l,03^g§\ $156,609 

Understated 

Disbursements $895,253 M - $114,672 

Understated 

Ending Cash-on-Hand @ 

December 31,2012 

$ 1%-*^ ^ 34,80: $ 5,467 

1 Understated 

The overstatement of beginning cash-on hantf N 

discrepancies noted for 2011 above. 

a result o|«he reporting 

The understatement of receipts re-- ii.-.: .)m the follow^-

• Unreported in-kind contributioi. 

• Receipts over-reported 

• Receipts under-rr— 

• Over-reporte^ - " -eceipts 

• Return dep >-!ins rc| :ed as disbarments 

instead of a neg.-iii^.i enl. on ScheduleT 

• Unexolained dil 

niivi-«liiu-iiii-iil lit' keceipia 

nderstatemen sbii SStts resulted from the following: 

• . ted in-ki ^ mtribimons 

Di-j. lentsnot imported 

Disbu .^^ts repc ' cd but not in bank activity 

Disburseim^ ^ed as memo entry clearing bank 

Inter-accounrp^sfer reported 

Disbursemeift amounts reported incorrectly 

Retum deposit items reported as disbursements 

instead of a negative entry on Schedule A 

Net Understatement of Disbursements 

$ 16,208 

(25,937) 

179,118 

(21,774) 

(1,665) 

10.659 

$ .16,208 

101,152 

(2,497) 

5,000 

(4,205) 

679 

(1,665) 

$114.672 

The $5,467 understatement of the ending cash-on-hand was a result of the 2012 

reporting discrepancies noted above. 
10 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the misstated amoimts. HDP representatives stated they 

would amend their reports in response to the lAR. 

The lAR recommended that HDP amend its disclosure reports to correct the 

misstatements and reconcile the cash balance on its most recent report to identify any 

subsequent discrepancies that could affect the recommended adjustments. The lAR 

also reconunended that HDP adjust the cash-on-hand balanci^^ecessary, on its 

most recent report, noting that the adjustment is the resul •. pno^eriod audit 

adjustments. 

3. Committee Response to Interim Audit Repuri .< 

In response to the JAR recommendation, HD^i.-.i onended di.<>. I--:.-,'! reports for 

2011 and 2012 that corrected the misstateme^T The amended 201 ' 

reports also added Levin activity that wa^ '-:.-viou^' .-ported. Inlffltoan. 

Counsel stated that the HDP did not believe tl*".- ( \ '>«should havelDeen 

included in this finding,^ but decided not to remc , . account from its federal 

reports when it flled amendment^, •••-'• ever, it ackriuv ' ,ed that it had inadvertently 

and incorrectly included some of i •.• • y of this a . •' its federal reports 

After consideration of Counsel's res®nse T .i,. . -isultati.-: »• i our Office of 

General Counsel, the Audit staff dete^inc... !• i i gamble information, that the 

CA is not a federal a * since its acwj^Ts r.'- .-.iwar. Consequently, the Audit 

staff excluded the^ ctivity fr^the misst^ment finding calculation 

which resulted .i - .-visii the misstat^amounts as show below:^ 

• Beginn • j;. '"or 2 '" 1 was overstfe^by $37,313. 

• Ending cash —=~-^ash for 2012 were overstated by 

Receipt - 12 »• .-N-t^^verstated by $64,465. 

/ • Disbursemen ' 2oT^.-e overstated by $107,427. 

TheAud ^ ffrecomi ids that HDP amend its disclosure reports to correct the 

misstatemei ' id rec^ile the cash balance on its most recent report to identify any 

subsequent«—^that could affect the recommended adjustments. The Audit 

staff further rei i .-iids that HDP adjust the cash-on-hand as necessary on its most 

recent report, notll^g that the adjustment is the result of prior period audit adjustments. 

' Further explanation of Counsel's response is contained under the Committee's Response to the Interim 

Audit Report, Finding 3, Receipt of Apparent Impermissible Funds. 

' The amounts that need to be removed from the amended reports reflect the balances and 

activity of the CA. The CA beginning and ending cash balance for 2011 and the beginning cash balance 

for 2012 was SI,02S (the CA had a zero ending cash balance for 2012), the 2012 receipts activity was 

S221,074, and the disbursement activity was S222,098. 
11 

B. Misstatement of Financial Activity - Original Reports Filed 

1. Facts 

During audit fieldwork, in addition to examining HDP's most recent reports filed 

prior to the audit notification, the Audit staff compared HDP's originally filed reports 

with its bank records. The purpose of this additional reconciliation was to identity 

the degree to which HDP had misstated its original filings. 

The Audit staff calculated that HDP understated disbursements on the original reports 

filed by $358,942 over the two-year period (2011-2012). This figure includes the 

$12,606 and $114,672 understatement of disbursements from^|d 1 and 2012 

discussed in Section A. above (Misstatement of Financial "^nvit^Most Recent 

Reports Filed Prior to the Audit). 

2. Interim Audit Report & Audit Division Rcciuii^ndsiiiiiii 

The Audit staff discussed the understatement ^i"-l--^sements o:i :i«- original reports 

during the exit conference and provided HI^ 'I^reserUatives a copi .>J 'relevant 

schedule. HDP representatives had no spf''. mme: • - at the time. '* 

^ S ^ 

The IAR recommended that HDP provide any adS al conunents it deemed 

necessary with respect to this maftor. 

3. Committee Response to Interim \iiiiirRi|iort 

HDP did not provide any additional c^mer®>si|;t".:.: - understatement of 

disbursements on its oaeinal report anmno^thL- .-i -i.i- s required. The removal of 

the CA and its actj^'^ , _.. s this poro^ of the filing. 

Finding 2. l^ec^t qfContribiMjltfns that Exceed Limits 

Summuiy ^ 

Durina^idit fielawoiv A .In -• if 'dentified contributions from two political action 

com ' - that excel * lim .:i - by $20,000. Both of the excessive contributions 

were un -i^^^jjjefunded. t^evesf^ocumentation was not provided to demonstrate that 

one refundHi^ " -,$5,00 i cleared the bank. In response to the lAR 

recommendat '•' unsel^ovided documentation demonstrating the refund for $5,000 

had cleared the ba - .^udit staff concludes that HDP untimely resolved excessive 

contributions totalii * ,000. 

r 

Legal Standard 

A. Party Committee Limits. A state, district or local committee of a political party may 

not receive more than a total of $5,000 per calendar year from a multicandidate 

political committee. 52 U.S.C. §30116(a)(2)(C) and 11 CFR §110.2(d). 

A state, district or local committee of a political party may not receive more than a 

total of $10,000 per calendar year from a non-multicandidate political committee. 52 

U.S.C. §30116(a)(1)(D) and 11 CFR §110.1(c)(5). 
12 

B. Handling Contributions That Appear Excessive. If a committee receives a 

contribution that appears to be excessive, the committee must either: 

• Return the questionable check to the donor; or 

• Deposit the check into its federal account and: 

o Keep enough money in the account to cover all potential refunds; 

o Keep a written record explaining why the contribution may be illegal; 

o Include this explanation on Schedule A if the contribution has to be itemized 

before its legality is established; 

o Seek a reattribution or redesignation of the excessive portion, following the 

instructions provided in the Commission regulations; and 

o If the committee does not receive a proper reattributi^^r redesignation 

within 60 days after receiving the excessive contrih|^n,l^fund the excessive 

portion to the donor. 11 CFR §103.3(b)(3), (4)^.^Ki • * • 

Facts and Anal3rsis X 

> -

A. Facts ^ 

HDP accepted contributions from two political !•-: con^ttees that exi .-.-.'.la the 

limitation by $20,000. One contribution from a i • •• -^ate political'action 

committee was received on March 15,2012 for $25. ^ suiting in an excessive 

contribution of $15,000. HDP untimt^*-funded the e- . ' ; portion on September 28, 

2012 (197 days later). 

The second contribution from a multican^atep.i'I '.iffcommittee was received 

on October 19,2012 foi ""O, resulting ^ n excf---»..mtribution of $5,000. HDP 

reported an untimelyE^rana-e, : excessivei^rtion onfime 19,2013 (243 days later); 

however, documenj^<: was i nrovided th^emonstrated the refund check had 

cleared 

B. Inte^ 

the bank. 

\iiilii Ucp.iiii A \iidit 

W 

Bit i<«iiiii • Recommendation 

The A^^taffdis. .> " 'his:-, u. at the exit conference and provided HDP 

reprg^i ivesaschet the •-p^nt excessive contributions. HDP representatives 

had no sp.. 1.1. c commen ^ ' -le ti^ 

The lAR rec .^^ded thi I :DP provide documentation demonstrating that the refund, 

totaling $5,000, r|^Kted.dS^June 19,2013, had cleared the bank. Absent that 

documentation, it A immended that HDP void the original refund check and issue 

another refund for thi^xcessive portion, or if funds were not available to make the 

necessary refund, disclose the excessive portion on Schedule D until funds became 

available to satisfy the obligation. 

C. Committee Response to Interim Audit Report 

In response to the lAR recoimnendation, HDP provided documentation demonstrating 

that the refund, totaling $5,000, had cleared the bank. The Audit staff concludes that 

HDP untimely resolved excessive contributions totaling $20,000. 
13 

Finding 3. Receipt of Apparent Impermissible Funds 

Summary 

During audit fieldwork, the Audit staff identified 75 receipts, totaling $169,586, 

deposited into HDP's federal accounts during 2012 that appeared to be from 

impermissible sources. In response to the lAR recommendation, HDP Counsel stated 

that a majority of the impermissible contributions were received in connection with 

HDP's state convention; and therefore. Counsel believes that the CA should be removed 

from the impermissible funds analysis. Counsel stated that state convention activity 

should not be considered federal activity. Also, Counsel believes dmt amounts 

transferred from HDP's federal account'" to its CA for non-fedej^!|(^rooses (convention 

flindraising) should mitigate other impermissible funds. In .\i:'ion, HDP showed that 

$5,080 of receipts were permissible, $27^000 of receipts : ely refunded, and 

filed amended reports for $115,000 of impermissible rec^ts fi.<-:i i i-morations on 

Schedule D (Debts and Obligations). , " % ' 

After consideration of Counsel's response am' ultation^th our 01 (leneral 

Counsel, the Audit staff determined, based od'avau- injpmation, that ti:.- ( \ is not a 

federal account since its activity is non-federal. C^!. . ml^he Audit st^ concluded 

that $22,006 in receipts deposited intone CA were n srmissible and excluded this 

amount from the finding. In additionT^ 1 alculated amo ' f impermissible 

contributions was reduced by $10,959 'i'- made wfl~"i fpropriate timeframes 

from one of the federal accounts to the ok leawT^ i -nperi !>--- le balance of 

$104,451. % . - r 

The Audit staff recors^nds^,.,' HDP file al&piended report to reduce the debt amount 

for impermissible^^i;* - on Si i.-dule D to $1|i4.141. Also, the Audit staff recommends 

that HDP provide doi . i . i: vould alMTthe Audit staff to determine if and to 

what extent imp?r~."ssib'. jmection with a federal election. 

Legal ^^ndard 

A. of Prohibiiril Contriliiiiiims-General Prohibition. Candidates and 

conu-1 ..'gis may not ^jcnt coi^ibutions (in the form of money, in-kind contributions 

or loansj^^m the follo'Aing prohibited sources: 

• Co^i ons (^=!ni2ed by authority of any law of Congress; 

• Labor ta-" '^ions; 

• National^^IKS (except a loan made in accordance with the applicable 

banking raws and regulations and in the ordinary course of business); 

• Federal Government Contractors (including partnerships, individuals, and sole 

proprietors who have contracts with the federal government); 

• Foreign Nationals (including individuals who are not U.S. citizens and not 

lawfully admitted for permanent residence); foreign governments and foreign 

political parties; and groups organized under the laws of a foreign country or 

groups whose principal place of business is in a foreign country, as defined in 

. 22 U.S.C. §611(b); and 

See footnote 4. 
14 

• In the name of another. 52 U.S.C. §§30118,30119,30121, and 30122. 

B. Definition of Limited Liability Company. A limited liability company (LLC) is a 

business entity recognized as an LLC under the laws of the State in which it was 

established. 11 CFR §110.1(g)(1). 

C. Application of Limits and Prohibition to LLC Contributions. A contribution 

from an LLC is subject to contribution limits and prohibitions, depending on several 

factors, as explained below: 

1. LLC as Partnership. The contribution is considered a contribution from a 

partnership if the LLC chooses to be treated as a partnersj^^pder Internal 

Revenue Service (IRS) tax rules, or if it makes no choie^at alhabout its tax status. 

A contribution by partnership is attributed to eachnapi ^-i -1 his or her share of 

the partnership profits. 11 CFR §110.1 (e)(1) an^|)('.' 

2. LLC as Corporation. The contribution is coi!-i.'..-^a coi .-.ontribution-and 

is barred under the Act-if the LLC choosesJ^ teated as a ..-j-i-: ition under 

IRS rules, or if its shares are traded publidly: 11 C^R § 110.1 (}••••'. 

3. LLC with Single Member. The contri^ "S con.»\\ -ed a contr-"-.Jn from a 

single individual if the LLC is a single-m.-'-i;^'.-: T 7 C .:.4t has not chi^n to be 

treated as a corporation under IRS rules. 11 t I U' * 10.1 (g)(4). 

eD. Limited Liability Company's Ri-Hiiiiiiikiliility to Noiih Rvi-ipient Committee. At 

the time it makes a contribution, an^( i.>-tify the .-..-:y-jnt committee: 

• That it is eligible to make the consul ^ 

• In the case of an " C ' t considera^gif a pan^psnip (for tax purposes), how 

the contributi^^ aw _ attributed^ong the &C's members. 11 CFR 

§110.1(g 

-

E. Questionable Contrihiiiiiiii^ ' ^i^receives a contribution that appears to 

I. i;.'.-*ti(-: rL contriuui it must follow the procedures below: 

!thin 1 (•. • i> - tl; : I - irer receives the questionable contribution, the 

iiittee mu^ 

l< am the co ution^ the contributor without depositing it; or 

• iVilesitthecor - mtion (and follow the steps below). 11 CFR §103.3(b)(l). 

2. If die ' ttee d( sits the questionable contribution, it may not spend the 

funds anu '-.-prepared to refimd them. It must therefore maintain sufficient 

funds to mas\^ u- refimds or establish a separate account in a campaign 

depository fo^ossibly illegal contributions. 11 CFR §103.3 (b)(4). 

3. The committee must keep a written record explaining why the contribution may 

be prohibited and must include this information when reporting the receipt of the 

contribution. 11 CFR §103.3(b)(5). 

4. Within 30 days of the treasurer's receipt of the questionable contribution, the 

committee must make at least one written or oral request for evidence that the 

contribution is legal. Evidence of legality includes, for example, a written 

statement from the contributor explaining why the contribution is legal or an oral 

explanation that is recorded by the committee in a memorandum. If the 

contribution cannot be determined to be legal, the treasurer shall, within thirty 
15 

days of the treasurer's receipt of the contribution, refund the contribution to the 

contributor. 11 CFR §103.3(b)(l). 

F. Contributions to delegate and delegate committees. Funds received for the 

purpose of furthering the selection of a delegate to a national nominating convention 

are contributions for the purpose of influencing a federal election. 11 CFR 

§110.14(c). 

G. Federal v. Nonfederal Account. The federal account may contain only those funds 

that are permissible under the federal election law; the nonfederal account may 

contain f\mds that are not permitted under the federal law (bi'^^*'" legal under state 

law), such as contributions that exceed the limits of the 

from prohibited sources, such as corporations and labo^ 

§102.5 (a)(l)(i) and (a)(3). 

Facts and Analysis 

la^ and contributions 

lizations. 11 CFR 

A. Facts ^ •v 

During audit fieldwork, the Audit staff identified *:». .Jp, - :italing $ 169,^ deposited 

into HOP'S federal account during 2012 that appeared! from impermissible sources. 

The sources of these receipts were a^~i:'.'..)ws: 

Source 

Labor Union" 

Corporatioii^' Corporatio, " • • 

Limite^ri tyCd^i 

Unregister.-.:.H: _.mi 

The p ^es of tl*. 

^ i mtributions*' 

^^'la^garty 

tranST^" i 

Democrr"Natioi % 

convei 

is totalini 

tly for: 

; totaling S96,421; 

;. registration fee, convention booth fee) - 49 

15,085; and 

Convention Credentials - 4 transactions totaling $58,000. 

Four of the receipts I^n corporations, totaling $27,000, were untimely refunded. 

However, documentffion was not available demonstrating the refund checks had cleared 

the bank. The remaining 71 receipts totaling $142,586 remain unresolved. 

Hawaii state campaign finance statutes permit the acceptance of funds by a party from 

labor unions, domestic corporations,'^ and limited liability companies in an aggregate 

" An unregistered organization is a political committee that has not registered with the Federal Election 

Commission. 

Three corporate contributions were erroneously disclosed as political action committees and two were 

erroneously disclosed as individuals. 
16 

amount no greater than $25,000 in any two-year election period. However, federal 

regulations prohibit such contributions to be deposited into a federal account or used to 

influence federal elections. 

B. Interiiii Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the apparent impermissible receipts. HDP representatives 

stated they would review the schedule. 

The lAR recommended that HDP submit documentation demonstrating that these receipts 

were refunded in a timely matter, were timely transferred to a no~'*^''eral account, or 

were not from prohibited sources. Absent this documentatioi^c reconunended 

that HDP refund the impermissible receipts or if funds wera^-. lailable to make the 

necessary refunds, disclose the impermissible receipts o^^hf '.l' .1 j 11 imtil funds become 

available to satisfy the obligation. In addition, with rec. -eceived for the 

Hawaii state party convention, the lAR recommend^ »iJt HDP sul-: ii I'-fCumentation 

demonstrating that these receipts were not obtaim^in connection with • ing 

convention that nominated candidates for fed®' '\'.e. 

C. Committee Response to Interim Audit Repoi-i' 

In response to the lAR recommendati^^.. Counsel stated!^^ ~ majority of the 

impermissible contributions were recc - !:• .• nnection v^i 'l l:)l"s state convention, 

and that these contributions were mere-.• i>. .-l contri-i • p- s used to underwrite 

the state convention.'^ Counsel explainel^al'. t .ci.: ^established for the sole 

purpose of administering HOP's biennial o . 'Stion ;• Commission regulations 

specifically permit st^^—exclusivei|||use non-fiSeral funds to pay for 

convention expen.<>j-. i .1 all fu^ deposited this account were used solely for that 

purpose. Accordi': . (i- .-tselMgued that no^^bursement to the non-federal account 

should be required becj — '•^nenses are payable with non-federal funds 

(11 C.F.R i = •I'.: • K .• •)) •-••re pam'^msnfeaiately. Also, that a transfer of fimds, 

$56,00|^'trom its les ac. .• ,.:itto the CA had occurred to cover a convention 

fun<' -ihortfall t uld t^idered a mitigating factor when considering the 

amount'.!' ".nisdeposits. ^ . unseL='-o stated, that subsequent to the 2012 convention, 

HDP ha. ;-.^-'y paid for. invention expenses directly finm non-federal accounts, and 

had done so prq^ously. Fii • ly. Counsel pointed out that state convention contributions 

included contribui^ fTq|^ unregistered candidates for local office and that HDP 

believed these coi - s had sufficient permissible funds to make contributions under 

11 C.F.R. §102.5(b)^.' '10 

Foreign corporations, including a domestic subsidiary of a foreign corporation, a domestic corporation 

that is own^ by a foreign national, or a local subsidiary where administrative control is retained by the 

foreign corporation are prohibited under Hawaii state campaign finance statutes. 

Counsel reiterated his response to Finding 1, Misstatement of Financial Activity, that stated the CA 

should not be considered a federal account, and that state convention expenses are payable with non 

federal funds. 

Transfers from other federal accounts into the CA totaled S78,164. 

" The Audit staff was not provided documentation to support this contention; the unresolved amount is 

SSOO. 
17 

The Audit staff disagrees with Counsel that a majority of the impermissible contributions 

were received in connectipn with HDP's state convention. Of the $169,586 in 

impermissible receipts identified in the lAR, only $22,006 (or 13%) were deposited into 

the CA." The remaining $147,580 (or 87%) were not identified as state party convention 

related and were deposited into other federal accounts. 

The Audit staff agrees with Counsel that the CA receipts and expenditures were used for 

administering HDP's biennial convention. However, the Audit staff notes that as part of 

the initial audit process, bank account information was gathered, and this information 

included confirmation from HDP's Executive Director that the CA was a Federal 

account. As such, during the 2011 and 2012 audit period, the C .' treated as a federal 

account by HDP. All receipts, expenses and account balance^f^^is^count were 

reported as federal activity on its disclosure reports and • * activity was 

disclosed on its state reports filed with the State of Haw^^ - y.-.. - Spending 

Commission." Because HDP reported activity for thetC^s a fe.'.-'.i ccountand 

confirmed to the Audit staff it was a federal accoi^ kudit staff '.-.1 it as such. As 

a federal account, these receipts were subject ti ^ prohibitions of the ^ 

In response to Counsel's statement that HDP pro: v:^ ' "^hyention exposes prior to 

and subsequent to the 2012 election cycle, the Audi^ id not audit HDP for Aese 

coverage periods and cannot speak td . ther HDP prop"''^' paid for these state 

convention expenses. However, the .\- .!.i"noted thui .• .;revious four state 

conventions, begiiming in 2004, that state pan' .> ' ention v. re reported as receipts 

and the state party convention expenses r^rl.-/ •« ;iT-"!.. lints on its federal reports, 

but none of this activity " closed on rc;-.< • - I'-^ .l with the State of Hawaii 

Campaign Spending CA. ' " ^ 

The selection of .'.-sM the DNC co^^tion occurs, per its constitution and 

bylaws, at its state convein.'. I . J —"nrnmendation requested documentation that 

would . A nT5Fv'.i] •. I i\im^-w funds that were used for a nominating 

conven^Tthat m s i"n|^C! • •!: '^•-s for federal office. No additional documentation 

abo sage of impem^siblt ..;*\s was provided. Lacking this information, and 

witli tner':--..- : nation avaHSlle to d^, the Audit staff cannot determine if and to what 

extent iir> i, ' "ble rece, ivere in connection with a federal election. After 

consideratioi . •' insel' - Tfsponse and consultation with our Office of General Counsel, 

the Audit staff Uw,,. n^. '>ased on available information, that the CA is not a federal 

account and its acl ipnot federal. Consequently, the Audit staff concluded that 

$22,006 in receipts ^^sited into the CA were not impermissible and excluded this 

amount from the finding. 

" These deposits consisted of S19,021 (or 11%) reported as state party convention fees and $2,985 (or 2%) 

not reported as state party convention related. 

" HDP did not report transfers from other federal accounts, which corresponds to the account being treated 

as Federal. Also, as mentioned in the Misstatement Finding (Finding 1), the Committee had an 

opportunity, in response to the lAR, to file amended reports to exclude Ae CA, but did not. 

" Some other convention expenses, such as county convention expenses, were reported on HDP's state 

reports. 

^2012 By-Laws of the Democratic Party of Hawaii and the 2012 Constitution of the Democratic Party of 

Hawaii. 
18 

Also, in response to the lAR recommendation,. HDP filed amended reports disclosing ten 

impermissible receipts from corporations, totaling $115,000, on Schedule D. Counsel 

stated that the impermissible frmds will be refunded to the donors, if and when funds 

become available. Counsel reiterated his statement that HDP should be allowed to reduce 

the impermissible amount based upon transfers of Federal funds to its CA (as mentioned 

earlier in this section). However, most of the transfers ($67,205 of the $78,164) were not 

related to the irnpermissible receipts as the transfers were made prior to the receipt of the 

impermissible contributions. Accordingly, the Audit staff reduced the finding amount by 

$ 10,959 for transfers made within the permissible timeframes.^' 

Other items addressed in Counsel's response were as follows^^^^in receipts were 

for two vendor refunds; documentation demonstrating that.» k- ioceipt for $5,000 was 

from an LLC having non corporate tax status; and docurn^aiio.i li.-. t-nstrating that four 

receipts from corporations, totaling $27,000, were ur*ir-a|i refu .-. •.! that the refunds 

had been deposited by the contributor. ^ 

The Audit staff reviewed Counsel's response<el»^". docuh..-ntation pro\i. ij.l .ffid 

determined that the $80 in receipts were vendor refi.i'..i- 'jfi^contributio^f $5,000 

from the LLC was a permissible receipt, both of whi.-l finding amoimt was reduced. 

Also, that $27,000 was untimely ref\fi.i\-.= to four corp^„. / itities. 

The chart below shows the description 

adjustments for information provided in 

• "Jy Descri|iiiiin 

lAR Impermissible Kfi-t:i|iis ' ^ 

Impermissible .-i:'- dt--.-^.". 

Corporates^- .'i-clo-.*. 

Federali^sfers occi: itli 

Vendi^flP^i-.-ls 

LLC taxei'^!- irtnership ^ 

Amount oflmpt-niiissible Receipts before Refunds 

Less: Amount ui ^ .M^^efunded 

Remaining Impermissmie Funds (Schedule D) 

)le receipts after 

lAR. 

y 

• ^tion Account 

Schedule u reduced by 

.111 ssible timeframes. 

Number of 

Transactions Total 

75 $169,586 

(57) ($22,006) 

(0)22 ($10,959) 

(2) ($80) 

(1) ($5,000) 

IS $131,541 

(4) ($27,000) 

11 $104,541 

The Audit staff concludes that HDP accepted 15 impermissible receipts totaling 

$131,541. However, HDP untimely refunded $27,000, so that $104,541 needs to be 

reported on Schedule D ($500 remains unresolved). The Audit staff recommends that 

] I C.F.R. §103.3(b) allows 30 days for reflinds of impermissible receipts. 

The amount of an impermissible corporate contributions to which the transfer of S 10,939 was applied 

only partially reduced the impermissible contribution amount, as such, the number count of 

impermissible contributions did not change. 
19 

HDP file an amended report to reduce its disclosure of impermissible receipts on 

Schedule D to $ 104,541. Also, the Audit staff recommends that HDP provide 

documentation that would allow the Audit staff to determine if and to what extent 

impermissible receipts were in connection with a federal election. 

Finding 4. Reporting of Debts and Obligations 

Summary . 

During audit fieldwork, the Audit staff identified debts and obligations from 17 vendors, 

totaling $115,967, which were not itemized or were under reported on Schedules D 

(Debts and Obligations). In response to the lAR recommendationJiDP filed amended 

disclosure reports for 2011 and 2012 correctly reporting and dis<^^^ these debts and 

obligations on Schedule D. . / . 

< 

Legal Standard 

Reporting of Debts and Obligations. 

A. Continuous Reporting Required. A politic^Sbmnnttee must the amount 

and natiu% of outstanding debts and obligati^s until tl^se debts are .xi::'.- .jshed. 52 

U.S.C. §30104(b)(8) and 11 CFR §§104...^-/ 04."\ 

' \ r •\ * 

B. Separate Schedules. Apolitical^mmitteemus }arate schedules for debts 

owed by the committee and debtsVI o the comm... igether with a statement 

explaining the circumstances and i under wh ' !..;jMebt and obligation 

was incurred or extinguished. 11 cf*' 

C. Itemizing Debts a^^MlSniiu.i lions. 

• A debt of $5 wle 3t be reportlM once it has been outstanding 60 days from 

the date inpi^ •. : • :he d^of the trans^os); the committee reports it on the next 

regularly sche.:.: .• •»» - - . 

A dc'-. *.-xk».-dinL^d in the report that covers the date on 

ivL--i-as . 1. 11 CFR §104.11(b). 

D. A\ t .liicfs by ComiiSTiti! Sliilf iiS!d Other Individuals. 

1. .Si-iinfc This sectii mplie^o individuals who are not acting as commercial 

venoSt ' dividuaH^ho are acting as commercial vendors shall follow the 

requin' - -s of 1 l^FR §§ 116.3 and 116.4. 

2. The treaiiiii^^^ntributions. The payment by an individual from his or her 

personal fun^jmcluding a personal cr^it card, for the costs incurred in 

providing gdMs or services to, or obtaining goods or services that are used by or 

on behalf of, a candidate or political committee is a contribution unless the 

payment is exempted under 11 CFR 100.79, it shall be considered a contribution 

by the individual unlessa) The payment is for the individual's transportation expenses incurred while 

traveling on behalf of a candidate or political committee of a political party or 

for usual and normal subsistence expenses incurred by an individual, other 

than a volunteer, while traveling on behalf of a candidate or political 

committee of a political party; and 
20 

b) The individual is reimbursed within sixty days after the closing date of the 

billing statement on which the charges first appear if the payment was made 

using a personal credit card, or within thirty days after the date on which the 

expenses were incurred if a personal credit card was not used. For purposes 

of this section, the closing date shall be the date indicated on the billing 

statement which serves as the cutoff date for determine which charges are 

included on that billing statement. In addition, "subsistence expense" includes 

only expenditures for personal living expenses related to a particular 

individual traveling on coimnittee business, such as food or lodging. 11 CFR 

§116.5(b). 

3. Treatment as debts. A political committee shall treat th^Migation arising from 

a payment described in paragraph (b) of this section as.,^rou^nding debt until 

. reimbursed. 11 CFR § 116.5(c). 

Facts and Analysis 

disbii: -.^1 

A. Facts 

During audit fieldwork, the Audit staff used disbTi: -.ment recon.- :i- s .-.ioncile 

the accounts^^ of 17 HDP vendors. This review and obligates from 

these vendors, totaling $115,967 that were not itemiA-.; under reported on Schedules 

D. Of this amount, $68,744 were deb'-:. t reported, an " • 223 were debts that were 

under reported. These vendors provi( .•..!•! >1 '^th servic •«.: s office space, polling, 

accounting, database accoimting soft\. .'.. sting, p":: ii: j, insurance, 

telephone, copier lease, and staff reimbi" 

B. Interim Audit • A \iiilit Divisioi^ecommdhdation 

The Audit staff di.<'wi;i-.-.l this.. .er at the emconference and provided HDP 

representatives a ^cnemi.;- .>f thi- i-ebts and obl^jt^ns that were not itemized or were 

under reported. HDP ri.-..-.:-.ii' •. would review the schedule of debts and 

obligatior 

The k^^^commeni b HI)!' .i* -He additional dociunentation demonstrating that 

theseti^^!..' ons were n^ >• 4igat|Bms which required reporting on Schedule D. Absent 

such docu :• ion, the A -. t staff recommend^ that HDP amend its reports to 

correctly re] ' discloi-t- 'hese debts and obligations on Schedule D. 

C. Committee ResHih^to Interim Audit Report 

In response to the li^recommendation, HDP filed amended disclosure reports for 2011 

and 2012 that correctly reported and disclpsed these debts and obligations on Schedule D. 

^ The reconciliation consisted of calculating invoiced and paid amounts for each reporting period in the 

2011 -2012 election cycle. The Audit staff then determined whether any outstanding debts were 

con^ctly disclosed on Schedule D. Each debt amount was counted once, even if it required disclosure 

over multiple reporting periods. 

Staff reimbursements consisted of three individuals with debts not reported totaling SI 0,768 and debts 

under reported totaling SI,998. 
21 

Finding 5. Recordkeeping for Employees 

Summary 

During audit fieldwork, the Audit staff determined that HDP did not maintain any 

monthly payroll logs, as required, to document the percentage of time each employee 

spent in connection with a federal election. For 2011 and 2012, the Audit staff identified 

payments to HDP employees totaling $60,923 for which HDP did not maintain monthly 

payroll logs. This consisted of $48,510 for which payroll was allocated between federal 

and non-federal funds, and $12,413 for which payroll was exclusively paid with nonfederal fimds. The lAR recommended payroll logs be provided o^ their absence that a 

plan be implemented to maintain payroll logs in the future. Cou^^^ted that the 

payroll logs could not be located but that HDP has implementi^rnrocedures to maintain 

the necessary documentation for payroll. v 

Legal Standard . ^ ^ 

Maintenance of Monthly Logs. Party committee^ustlteep a mo i.}gofthe 

percentage of time each employee spends in c . :tion with a federal eieciUM . 

Allocations of salaries, wages, and fringe berf&iirs..ri..- to 1-. i[|dertaken as ... •-» s: 

• Employees who spend 25 percent or less L: ii ^ ^rasated time^ a given 

month on federal election actj^ies must be para er from the federal account 

or be allocated as administratis 1 

• Employees who spend more thai^ r -heir cjii-. lensated time in a given 

month on federal election activitieamu^K- .•-.i.i 11 from a federal account; and 

• Employees wh^' . le of thei^^ipensate|prime in a given month on 

federal elec l>-I activi . lay be pai^ntirely with funds that comply with state 

law. llCFIt :l'i'..7(d)"-' 

a 

, Ar 

Facts and Analysis 

1. • 

Durfi'e,. fieldwork, tfii-" \udil reviewed disbursements for payroll. HDP did not 

maintair'-i . snthly pajn.*. logsror equivalent records to document the percentage of 

time each e...,^^e spent .: .'onnection with a federal election. These logs are required 

to document the^p-;r allr. .tion of federal and non-federal funds used to pay employee 

salaries and wag . 011 and 2012, HDP did not maintain monthly logs for $60,923 

in payroll.^^ This anraiEint includes payroll paid as follows to HDP employees: 

1. Employees r^orted on Schedule H4 (Disbursements for Allocated 

Federal/Nonfederal Activity) and paid with federal and non-federal funds during 

the same month (totaling $48,510); and 

2. Employees paid exclusively with non-federal funds in a given month and not 

reported by HDP (totaling $12,413). 

" This total does not include payroll for employees paid with 100 percent federal funds and reported as 

such (see Part I, Background, Commission Guidance, Request for Early Commission Consideration of a 

Legal Question, Page 1). Payroll amounts do not include fringe benefits. 
22 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of the disbursements for payroll lacking monthly payroll logs. 

HDP representatives had no specific comments at the time. 

The lAR recommended that HDP provide evidence that it maintained monthly time logs 

to document the percentage of time an employee spent in connection with a federal 

election; or implement a plan to maintain monthly payroll logs in the future. 

3. Committee Response to Interim Audit Report 

In response to the IAR recommendation, HDP stated that it coi^fno^cate the time logs 

requested in the lAR, but has implemented procedures thauynr-i i tain the necessary 

documentation in connection with payroll and fringe bet. t expv '>.-s in the future. As 

such, HDP has complied with the Interim Audit Report 1 ^mmi- .l'.^i>-iby 

implementing a plan to maintain monthly payroll 1^. I^e Audit s ' ci- eludes that 

HDP did not maintain monthly logs for payroll tmling $60,923. . N 

. V ' 

Finding 6. Failure to Properly Report |iiedia Relalfid . 

Expenditures ^ 

Summary 

During audit fieldwork, the Audit staff i3bi iI-.'";:.«i-..!semeq^totaling $30,148, which 

appeared to be media related independent^p^i' .1>\> 'Sing disclosure on Schedule 

E (Itemized Independe^^T^ tures), tha^^DP disc:>;-.-.- on Schedule B, Line 30b 

(Federal Election A ity) anV nedule F (^ordinated Party Expenditures). Of the 

$30,148, HDP did4\ .. the i.-.i; red 24-hoiu • .-.;orts for those items that should have 

been reported on 'I.-: to^ma,^29.725. 

In respoj^o i .;.'.omn . ation, Counsel stated these expenditure were 

coon'' 'd (and i i n -u "" epi .-•filed showing these expenditure as coordinated 

on i'.- F) and not •^ende * .•\:)enditures. Counsel added that, although the 

expendil ii. - vceeded HI i = s coorainated expenditure limit, this only occurred as a 

result of an aq*-^'~'strativc ^rsight, a failure to contact the Democratic Senatorial 

Campaign Co (D^jmC) to obtain a higher spending authority. 

As a result of HDP^^fflesponse to the lAR recommendation, the Audit staff determined 

HDP made coordindred expenditures totaling $129,725, but only had coordinated 

spending authority for $102,600. Therefore, HDP exceeded its spending limit by 

$27,125. The Audit Staff recommends HDP seek a refund from Hirono for Congress for 

the excessive amount. 

Legal Standard 

A. Definition of Independent Expenditures. An independent expenditure is an 

expenditure made for a communication expressly advocating the election or defeat of 

a clearly identified candidate that is not made in cooperation, consultation, or concert 
23 

with, or at the request or suggestion of, a candidate, a candidate's authorized 

committee, or their agents, or a political party or its agents. 

A clearly identified candidate is one whose name, nickname, photograph or drawing 

appears, or whose identity is apparent through unambiguous reference, such as "your 

Congressman," or through an unambiguous reference to his or her status as a 

candidate, such as "the Democratic presidential nominee" or "Republican candidate 

for Senate in this state." 

Expressly advocating means any communication that: 

• Uses phrases such as "vote for the President" or "re-electj^|m Congressman" or 

communications of c^paign slogan(s) or individual ^g^(s)/Which in context 

can have no other reasonable meaning than to urge or defeat of one or 

more clearly identified candidates; or ^ 

• When taken as a whole and with limited reference^ ex:.-:i-vents, such as 

proximity to the election, could be interpr^c!h reasonab -m only as 

advocating the election or defeat of one^^ore clearly identil .liti ites. 11 

CFR§§100.16(a), 100.17 and 100.22^ 

B. Disclosure Requirements - General Guidelines.^ \.i independent expenditure shall 

be reported on Schedule E if, whdi: • .:.:ed to other iritf^?"dent expenditures made to 

the same payee during the same ci: .-i..!.';) .-ar, it exce • • Independent 

expenditures made (i.e., publicly di^ • . rior to p *•: .-it should be disclosed 

as memo entries on Schedule E and a^de-' «>: f5. Independent 

expenditures of $20'" need not ^Jl^izi- --i.' the committee must report 

the total of those ^ on line (l^n Schedii^rE. 11 CFR §§104.3(b)(3)(vii), 

104.4(a) and IjJ ' 

C. Last-Minute Indepdfiiit-iii I- ^^^itiire I^orts (24-Hour Reports). Any 

i:\:-.;:..ut\i .-s.. regatingw;uOO or more, with respect to any given 

1, and: • r l!day but more than 24 hours before the day of an 

, must be i . ai S^port must be received by the Commission within 

T-. fter the ex^miture j|^ade. A 24-hour report is required each time 

additii- ^ ' ependent^penditures aggregate $ 1,000 or more. The 24-hour report 

must be ' , a Scheie E. The date that a communication is publicly 

disseminatei sdate that the committee must use to determine whether the 

total amount Oi in^^ndent expenditures has, in the aggregate, reached or exceeded 

the threshold rejJfUng amount of $1,000. 11 CFR §§104.4(f) and 104.5(g)(2). 

D. Independent Expenditure Reports (48-Hour Reports). Any independent 

expenditures aggregating $10,000 or more with respect to any given election, at any 

. time during a calendar year, up to and including the 20th day before an election, must 

be disclosed within 48 hours each time the expenditures aggregate $10,000 or more. 

The reports must be filed with the Commission within 48 hours after the expenditure 

is made. 11 CFR §§ 104.4(f) and 104.5(g)(1). 
24 

E. Requirements for Maintaining Records. Reporting committees are required to 

maintain records which provide, in sufficient detail, the information from which the 

filed reports may be verified. 11 CFR §104.14(b)(1). 

F. Coordinated Party Expenditures. National party committees and state party 

committees are permitted to purchase goods and services on behalf of candidates in 

the general election—over and above the contributions that are subject to contribution 

limits. Such purchases are termed "coordinated party expenditures." They are 

subject to the following rules: 

• The amount spent on "coordinated party expenditures" is limited by statutory 

formulas that are based on the Cost of Living Adjustmen T ~LA) and the votingage population. ^ 

• Party committees are permitted to coordinate the f ^ with the candidate 

committees. j 

• The parties may make these expenditures onb i. ^t]^ecti < i v. the general 

election. S. 

• The party committees—not the candidaldf^e re^onsible for .. these 

expenditures. * , • TM 

• If the party committee exceeds the limits .•.. ' r.; lb party experraitures, the 

excess amount is considered an in-kind contriumggjji, subject to the contribution 

limits. 52 U.S.C. §30116(d) "i .1 . CFR §§109. " 109.32., 

G. Assignment of Coordinated Party Impend it iirv Limit. K^olitical party may 

assign its authority to make coordinat^pam i-x|v: to another political party 

committee. Such a ^ ent must ^plcle in v. -j, state the amount of the 

authority assigne^ina oei-v.-. ived by tn^ssignee wfore any coordinated party 

expenditure irsu 'r ;o the assignffient. The political party conunittee that is 

assigned authorit) : ce .v.:nated pa: \;;.-nditures must maintain the written 

assignme"* fo-".t lea-' " » , » ^§104.14 and 109.33(a) and (c). 

Fact&^d ^-id Analysis" ^ 

A. Repm liii!! of Indepi iiiiriit Esqienditures 

1. Facts 

During audit the Audit staff reviewed disbursements to ensure the 

reporting compl^sess and accuracy of independent expenditures. The Audit staff 

noted that HDP imde media-related expenditures totaling $30,148 and disclosed them 

as Federal Election Activity or Coordinated Party Expenditures that may be 

considered independent expenditures. A breakdown of the analysis for these 

expenditures is as follows: 

Apparent Independent Expenditures Reported as Coordinated Party 

Expenditures and Federal Election Activity (Copy of Communication Made 

Available) 

HDP made 18 apparent independent expenditures totaling $30,148 for which it 

provided supporting documentation such as invoices, scripts, ads, etc. 
25 

i) For apparent independerit expenditures totaling $ 18,226, the 

communications contained language expressly advocating the election or 

defeat of a clearly identified candidate as defined under 11 CFR 

§ 100.22(a). This amount consisted of costs associated with 16 radio 

advertisements and one newspaper advertisement containing express 

advocacy.^^ The radio advertisements included the statement: "And on 

November 6th, let's furlough Linda Lingle!", and included the disclaimer, 

"Paid for by the Democratic Party of Hawaii, which is responsible for the 

content of this advertising". 

The 16 radio advertisements were disclosed on^neuifte F as Coordinated 

Party Expenditures. Aside from being repc:'.;.: Coordinated Party 

Expenditures, no documentation was avai^'-'.- .\-:i''>>'.strating 

coordination. Also, Counsel for HDP' .•/^slMd th.--. .-x.-enditures were 

not coordinated. Given these reasoi^ :.iJ Audit sta:: lvr.->es the 

communications should have beer^ported as Indepen(\ i[ j^nenditures. 

However, should HpP continy<- aaintain^at these radic 

^vertisements were not coordin .\ :. 'I..-. t^mkifree would hSVe exceeded 

its spending limit by $15,203. ^ ' 

TTie newspaper advert 

the General Election" wi 

Mazie Hirono, and Tulsi 

disclaimp" for by Paii 

any c^l' ididate 

disii-i..«i, the \ 

.. eluded the "Vote Democrat in 

iiea.K^ "ow of It r.'i i Obama, Joe Biden, 

iba:I ' e .!i ediiement included the 

, \ I l.ilfeii 2012," Not authorized by 

ittee". ^ven the content and the 

It staff bellies the communication should have been 

reif>-!..i-> I In lendentExp 

>' 

: I-. i: . •: i .-xpenditure totaling $11,922, the production 

anil - eiated with a television advertisement were paid by 

HDP. m^levi -i.i^ertisement depicted the Hawaii Senatorial 

candidate,^ : .la Lr : - making a speech at the 2008 Republican National 

convention/ While Ais depiction continued, the narrator stated the 

lidate, "I nda Lingle, was wrong then, about a lot of things, and she's 

formwaii now." The Audit staff believes the phrase, "she's 

wrc jTOawaii" was express advocacy because it had the same 

mear^^ as "defeat" and therefore could have no other meaning than to 

urge the defeat of the Candidate. The television advertisement was 

disclosed on Schedule B, Line 30(b) as Federal Election Activity and 

included the disclaimer, "Paid for by Vote Hawaii 2012, not authorized by 

any candidate or candidate's committee". Given the content and the 

disclaimer, the Audit staff believes the cost associated with the 

communication should be reported as an Independent Expenditure. 

^ The newspaper advertisement was not itemized on the FEC report (cost, S423). 

" This newspaper advertisement was paid for by the Democratic Party of Hawaii. 
26 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this matter at the exit conference and provided HDP 

representatives a schedule of disclosure errors for independent expenditures. HDP 

representatives stated they would review the schedule. 

The lAR recommended that HDP provide documentation and evidence that apparent 

independent expenditures totaling $30,148 did not require reporting as independent 

expenditures. Absent such evidence, the JAR recommended that HDP amend its 

reports to disclose these disbursements as independent expenditures on Schedule E 

and submit revised procedures for reporting independent ex^^^res. 

3. Committee Response to Interim Audit Repiirl y. ' 

In response to the lAR recommendation. Counsel si.iu-cnii.ii apparent 

independent expenditures were coordinated (and !iiiu-iick-ii icpiiris' ,^ere filed showing 

these expenditure as coordinated on ScheduleJ^iiiii luii iiiiii.-]viitle:r..-xpenditures. 

Counsel also noted that, although the total csl^inated^xpenditure< i xl.-. ded HDP's 

coordinated limit, it was only because of9 .'nistri ii\y oversight (-V Imilure to 

contact DSCC to obtain a higher spending au'Vi-::- I -Iq response included a 

letter from the DSCC Counsel stating that $S,Oi Drdinated spending authority 

was transferred to HDP on Noveil^er 1,2012; and m DP requested additional 

spending authority, he knew of no • -i -.m u'.iy spendi _ ' >• ity would have been 

withheld. Also, the letter provides ••IM l-.f rdinated^-.-: .ling authority to 

DSCC in the amount of $92,097. ^ 

The Audit staff a.y .T • ' *' 3 charactei ' ition of these communications as 

coordinated exp|^.:-'-ires anj^not as inde^ident expenditures. However, the Audit 

staff notes thatft. f- dio |gvertisements^61ing $ 17,803, included disclaimer 

wording for a comn 1 ix.,. ' Tby a candidate ("Paid for by the 

Dem^ii:. I' ri> i-fH ; - iii wnicni^nsEgsponsible for the content of this advertising"). 

Si / my, th.- . •. .-it -i . ' iment, totaling $11,922, included disclaimer wording 

^ .jommunicat •- aul -s^y a candidate ("Paid for by Vote Hawaii 2012, 

not ai. • -ized by an^..=. .lidatJPlT candidate's committee"). 

After funn^'' view, t v ' jwspaper advertisement classified by the Audit staff as an 

apparent im ' ;ntA-\ )enditure, totaling $423, was determined to be federal 

election activit], _^xtly reported on Schedule B, Line 30(b). 

Amended reports, filed in response to the lAR, disclosed the 16 radio advertisements 

and the television advertisement on Schedule F as coordinated expenditures. This 

was in addition to a television advertisement, totaling $100,000, previously reported 

as a coordinated expenditure on Schedule F. One television advertisement supported 

the democratic senatorial candidate for general election. The radio advertisements and 

28 As part of its response, HDP requested that the Final Audit Report reflect that the HDP's spending limit 

did not exceed the combined coordinated expenditure limit for the 2012 Hawaii Senate election. 
27 

second television advertisement opposed the republican senatorial candidate for 

general election. Coordinated expenditures reported on Schedule F totaled $129,725. 

The Audit staff disagrees with HDP's application of the DSCC's coordinated 

expenditure authority after HDP made coordinated party expenditures. Neither HDP 

nor the DSCC could locate a record authorizing additional spending authority. 11 

CFR § 109.33(a) requires that an assignment must be made in writing, state the 

amount of the authority assigned, and be received by the assignee before any 

coordinated party expenditure is made pursuant to the assignment. 

In similar cases, the Commission has rejected assignments o' '. iding authority after 

the fact, but did acknowledge in one of the cases that the ^^Rmittee had not 

exceeded its combined coordinated expenditure limit,^^j^^: would be the case for 

HDP. -

In response to Counsel, the Audit staff revised^ owlt^le of coGiiiii:i !ied 

expenditures to include $30,148 of media r^^d expenses that wei.-

thought to be independent expenditures, i ised s.-:..-.lule of coor 

expenditures totals $129,725 but HDP had co.--.: i.-s-^-i-.-qding author^ of only 

$102,600.^° The Audit staff determined HDP ex'.vj^ its coordinated spending limit 

by $27,125, and reconunends thai . I. )P obtain a re )m Hirono for Congress for 

this amount. 

B. Failure to File 24/48-Hour Reports^r Iiiiic|H-iiili-ni 1 .xipenditures 

1. Facts A y 

The Audit stai •«.-i i.-wed tl pparent ind^ndent expenditures noted above to 

determine whc*':..JJ-ioi eporting of £%^8-hoiu- report was required.^' The 

Audit staff determii *''#24-hour reports, as required for 

ind-'i'* I «i«r.ii 0^1*%'!... iX. 

A ^ interim Audii Kumrt A \ii^Division Recommendation 

The^' >ii' staff discus . this fitter at the exit conference aiid provided HDP 

repres ! " "'"esaschec . 'of24-hour reports that were not filed. HDP 

represenin . stated . / would review the schedule. 

Absent documC.x, l^and evidence that apparent independent expenditures totaling 

$30,148 did not ^aire reporting as independent expenditures (per Part A. above). 

^ Final Audit Report of the Commission on the Democratic Executive Committee of Florida (2008 cycle), 

Report of the Audit Division on California State Republican Party (1998 cycle), Report of the Audit 

Division on Missouri Democratic State Committee (1998 cycle). 

This amount consists of the coordinated party expenditure limit (2012 Senate General Election for 

Hawaii), $97,600, and SS,000 in coordinated spending authority transierred by DSCC. 

The date the expenditure is publicly distributed serves as the date that the independent expenditure is 

made for purposes of the additional 24/48-hour report filing requirement. In the absence of a known 

date for public dissemination, the Audit staff used the invoice date or date of incurrence to determine if 

a 24/48-hour report was required. 
28 

the lAR lecommended that HDP provide any comments it deems necessary with 

respect to the 24-hour reports that were not filed. 

3. Committee Response to Interim Audit Report 

In response to the IAR recommendation, Counsel provided no additional comments. 

However, since the expenditures noted above in Part A. were coordinated 

communications and not independent expenditures, no 24-hour reports were required. 

Finding 7. Allocation of Expenditures 

ilk. 

Summary ^ 

During audit fieldwork, the review of disbursements made f-r»4^e fraeral and nonfederal accounts identified an apparent non-federal r >>.' ctivity in the amount 

of $82,722. In response to the lAR recommendation, Hl^filed .led reports and 

submitted additional documentation for certain expen^y^. Ba^.-.- iiii i le new 

documentation, the Audit staff revised its calculaj^man?boncludes " .• it-: -federal 

account did not overfund the federal account.^ ' v \ / 

Legal Standard ^ ^ 

A. Paying for Allocable Expenses. JThe Commissio '.ations offer party conunittees 

two ways to pay for allocable, shffl.i' i.-.leral/non-fe-..: " xpenses. 

• they may pay the entire amoun'''ilt^red expense ii.>-:fthe federal account 

and transfer funds from the non-lae ••.- o the^.-.\;ral account to cover the 

non-federal share of that expenses^ 

• They may estabUgSE^narate. fede^^locatioijpEcount into which the 

committee ded^s !:-om both Hkfederal and non-federal accounts solely 

for the puiy.^'.'V. .)ayin.'• e allocable^rj?nses. II CFR § 106.7(b). 

B. Transfer^. G.-: .-ralb .. • ^J^^B^emav not transfer funds from its non-

. .>.-! IS - fe(\ '. . ..ount, except when the committee follows specific 

for payint; -^red i.-.'.-i " ,on-federal election activity. 11 CFR 

•a(l)(i)andl|^ (f). 

C. Repoiiiiig \llocable 1 %penses. A political committee that allocates 

federal/no . 1 ex^ses must report each disbursement it makes from its federal 

account (or sCp.,- ^cation account) to pay for a shared federal/non-federal 

expense. ComiT.^..wj report these kinds of disbursements on Schedule H4 (Joint 

Federal/Non-fed&al Activity Schedule). 11 CFR § 104.17(b)(3). 

D. Allocation Ratio for Administrative & Generic Voter Drive Costs. State and local 

party committees must allocate their administrative expenses and generic voter drive 

costs dependent upon which federal offices appear on the ballot for the election year. 

The minimum percentage of federal funds would be at least: • 

• 36 percent if both a Presidential candidate and a Senate candidate appear on the 

ballot; 
29 

• 28 percent if a Presidential candidate but not a Senate candidate appears on the 

ballot; 

• 21 percent if a Senate candidate, but not a Presidential candidate, appears on the 

ballot; and, 

• 1S percent if neither a Presidential nor a Senate candidate appears on the ballot. 

11 CFR§106.7(d)(2)and(3). 

E. Salaries and Wages. Committees must keep a monthly log of the percentage of time 

each employee spends in connection with a Federal election. Employees who spend 

25 percent or less of their compensated time in a given month on Federal election 

activity or on activities in connection with a Federal election^^^ither be paid only 

from the Federal account or have their salaries allocated a^ia^nistrative cost. 11 

CFR §106.7(d)(l). ^ 

F. Definition of Federal Election Activity. Fede: 1 > e^ion a£"v='\ FEA) is a 

specifically defined term of art for activity b^&te, ^strict or Ic. il ty committees 

that triggers special payment and reportin . uiremmts. Asage-..T»^i iK-^FEA 

must be paid for with federal funds. No<t .i.-ral f may be use.: FEA. 

There are four types of FEA: ^ 

• Voter registration activity during the period l^ffiavs before a regularly scheduled 

federal election including the^»-.m day itself; 

• Voter identification, get-out-tli.--ii". ;;eneric canii-M. iractivity conducted in 

connection with an election in wi^„w.. u-• .• for l.'.k-: • office appears on the 

ballot; \ X •f 

• A public comm that refers^jj^leariy i^imiified candidate for federal 

ofhce and th^tomol^gttacks, supports or opposes (PASOs) a candidate for 

that office^^-. >>mmu^ation need .jwressly advocate the election or 

defeat of the ... • qualil' • FEA; and 

• Ser\ ^ .1- .1 l.lei- .1::;; fndar month by an employee of a state, 

d^!:" •<! I. v. i-.irt.^ .-i i .i.^ .ittee wRSTspends more than 25 percent of his or her 

/^^pensate.-ii: urii .-n' pnth in activities in connection with a federal 

/ ^.?c*;on, includ: " lA n .-i.. -led above. 11 CFR § 100.24(b). 

G. Requii-i-il .n founts foWederal Election Activity. Each State, district, and local 

party orgam/"' n or ^pmittee that has receipts or makes disbursements for Federal 

election activiv. ilish two separate accounts in depositories as follows: One 

or more Federal'^uunts, and an account that must function as both a Non-Federal 

account and a Ld^n account. If such an account is used, the State, district, and local 

party must demonstrate through a reasonable accounting method approved by the 

Commission that whenever such organization makes a disbursement for activities 

undertaken pursuant to 11 CFR 300.32(b), that organization had received sufficient 

contributions or Levin funds to make such disbursement. 11 CFR §300.30(c)(3). 

H. Receipt of Levin Funds. Levin funds expended or disbursed by any state committee 

must be raised solely by the committee that expends or disburses them. Each 

donation must be lawful under the laws of the state in which the committee is 

organized and the funds solicited must not aggregate more than $10,000 in a calendar 
30 

year. Consequently, funds from national party committees, other state, district and 

local committees, and from federal candidates or officeholders, may not be accepted 

as Levin funds. 11 CFR §300.31. 

I. Disbursements of Levin Funds. A State, district, or local committee of a political 

party may spend Levin funds on the following types of activity: 

• Voter registration activity during the period that begins on the date that is 120 

days before the date a regularly scheduled Federal election is held and ends on the 

date of the election; 

• Voter identification, get-out-the-vote activity, or generic campaign activity 

conducted in connection with an election in which a candi^e for Federal office 

appears on the ballot (regardless of whether a candid •. T5r StSte or local office 

also appears on the ballot); ^ 

• The Federal election activity for which the disbu^^e • i- r.i. de must not refer to 

a clearly identified candidate for Federal off!..-

• The disbursement must not pay for any p^bl th^osts of ai.j r::-.v:dcasting, 

cable, or satellite communication, other.<^n a conmunication 11 •: iV:. .- ^solely to 

a clearly identified candidate for State ... . offi..,' ! 1 CFR §3i "• '• •3)(1) and 

(0). ' ^ • \ 

J. Reporting Federal Election AclT\ ii>. If a state, dism^^r local party committee's 

combined annual receipts and dis •: • »r federu.\- . activity (FEA) total 

$5,000 or more during the calendar . = /.'.M .littee n .lisclose receipts and 

disbursements of federal funds and L^n i.-: ^A. 11 CFR §300.36 

' \ ' 

K. Contents of Lc\ ill Ki-porl«. . ach reportdisclose: 

• the amount of. •>! - -ii -i T..: V- Levin Ads at the beginning and end of the 

repc**'ie p?~:^d; "' ! * • ^ 

i:..- .-iiy ::. ind recS^ts for the reporting period and the calendar 

Mtal amount' evin : i-n'. isbursements for the reporting period and the 

I'd. year; an ^ ^ 

cer'' lansactionsBat require itemization on Schedule L-A (Itemized Receipts 

ofLe\ ffdsl orMhedule L-B (Itemized Disbursements of Levin FundsL 11 

CFR §300 ». 

Facts and Anal iySs 

A. Facts 

During audit fieldwork, the review of disbursements made from the federal and nonfederal accounts identified an apparent non-federal overfunding of activity in the 

amount of $82,722. 

1. Expenses reported as allocated on Schedules H4. The Audit staff calculated 

the non-federal share of expenditures required to be disclosed on Schedules H4 

and compared that to the amount transferred from the non-federal account for the 
31 

period between 2011 and 2012. The non-federal portion of shared activity for this 

period was $110,092. However, the non-federal account transferred a net amount 

of $160,083, resulting in an over&nding of allocable expenses totaling $49,991. 

a) Below is a breakdown of the Audit staffs calculation of overfunding of 

allocable expenses totaling $49,991. The following expenses were disclosed 

on Schedule H4 but, based on available documentation, were not allocable 

and should have been paid with 100 percent federal funds: 

i) Payroll and Associated Costs: HDP paid expenses from a federal account 

but disclosed these as allocable administrative ex~'^"'>s on Schedule H4. 

HDP did not provide monthly logs, timesheetSj^^iioavits demonstrating 

that these costs were solely non-federal or . expenses (see Finding 

5). 

ii) Generic Voter Drive (GVD) Expens^. ItoPpaid ex from a federal 

account that appeared to be GOTS^Ictivity during the F. V •: I'^riod, 

but disclosed these as allocabl^!^^\-i ses on hedule H4. ""X ':on of 

these expenses were disclosed as :! (-i i-^spc Voter Dr ^expenses 

on Schedule H4. The remaining wen- .1 -i 'osed as shared administrative 

expenses on Scheduled • • Based upon^"" es and purpose of the 

disbursements and '. i ..Vii.' 'cumentati , '.led, it appears these 

disbursements should hav^^ !_)• •'.• with 10- t"- -nt federal funds and 

not disclosed as shared exp^se^:. i'. -'H4.^^ 

iii) Miscejj^ ,^^i^enses. HiW disclose(Pbxpenses on Schedule H4 that 

we . uffici^y documeii^ to allow the Audit staff to determine 

wKwuiwi' .«.-v C01 be shared. I^ifded in this total were disbursements 

for rent. -i .'. _ Station to support these disbursements 

w •:!- if]. aeiermm^ these expenses were made to support the 

/tr neaoq^ '.. • -• i iy .'r • temporary » campaign office locations. 

Z id^ii-iises paid I'l n^the n^^federal account. HDP paid certain expenses 

di-' " om the n^federal account that appeared to represent 100 percent 

feder "'"ity or ^cable activity that should have been disclosed on Schedules 

H4, resi' >! fiverfunding of expenses totaling $32,731. 

a) Below is^ireakdown of the Audit staffs calculation of overfunding of 

expenses paid from the non-federal account totaling $32,731. Based on 

available documentation, these expenses should have been paid with 100 

percent federal funds or allocated on Schedules H4: 

For the 2012 election cycle, a candidate for federal office appeared on the ballot in the state of Hawaii. 

For HDP, the FEA Voter ID, Generic Campaign Activity and GOTV period was June S, 2012 through 

November 6,2012. Further, the FEA voter registration period was November 8,2011 through March 

13,2012 and April 13,2012 through November 6,2012. 
32 

i) Federal Election Activity Expenses. HDP paid expenses totaling $30,576 

from its non-federal account that appeared to be PEA Type II (GOTV) 

activity that should have been paid with 100% federal frinds. Based on 

available documentation, it appeared these expenses pertained to various 

GOTV rallies. These costs included consulting services, facility and 

equipment rentals, food and beverages, entertainment and transportation 

expenses. 

ii) Miscellaneous Administrative Expenses. HDP paid expenses from its 

non-federal account that, based on available documentation, appeared to 

be expenses that should have been allocated betw .' ' le federal and nonfederal accounts. The federal share of these ex^flses Staled $2,155. 

These expenses pertained to office rent, bari^^^<. jftice vehicle repairs 

and accounting services. 

* 

B. Interim Audit Report &. Audit Division Re^iiiiilkidation 

The Audit staff discussed this matter at the exito^erence and providi-t- MElP 

representatives schedules identifying the tran?^^*' - causes the non-fedeoverfunding. HDP representatives stated they wi- .• »i. -ki^^getting thnjij .ormer staff 

to sign payroll affidavits for disbursements disclose.:' •- jcable administrative expenses 

on Sch^ule H4. 

' 

The lAR recommended that HDP prov .. tion den ating that the 

expenditures above did not cause an over^nd- • optfT^federal account of 

$82,722 ($49,991 + $32.734^ Absent suc]^'."^n( w I Si recommended that HDP 

reimburse the non-fedd^Ufflmt $82,722 o&^isclose t^ non-federal overfunding on 

Schedule D as a deb^ " funo^ <.;come avairable to satisfy the obligation. 

C. Committee Response in liiivi im Xinlii Ril^ort 

In respon-.- • K* I.M<,rei •:.-:idatioTli7!Hl»f' provided a declaration that stated several 

staff pa^ll paymeii - - e i. individuals who worked less than 25% percent of 

tim^' ivenmonl' "^U'vi:i lion with federal elections and federal 

election'Si.-'ii ily. The AiS^staff ^ s- owledges that these payroll expenditures are 

allocable •-! .^^i^edule H4,^d adjusted the calculation for overfunding accordingly. 

HDP also provi . ec^ration that asserted that several expenses disallowed by the 

IAR were in fact ( ^^oneratine costs. The Audit staff acknowledges that these 

expenses are allocab^^n Schedule H4, and adjusted the calculation for overfunding 

accordingly. 

In addition, HDP filed amended disclosure reports in response to the lAR 

recommendation that moved $38,251 in federal election activity expenses disclosed on 

Schedule H4 to Schedule H6 (allocated Levin & federal expenses). HDP provided 

Schedules L for Levin activity and have moved the necessary portion of allocation 

transfers to Schedule H5 so that these activities are properly disclosed as allocable federal 

election activity. The Audit staff acknowledges that the expenditures moved from 

Schedule H4 are expenditures for federal election activity allocable on Schedule H6, and 

adjusted the calculation for overfunding accordingly. 
33 

Finally, HDP objected to the inclusion of non-federal bank charges as allocable expenses. 

The Audit staff agrees that the non-federal bank charges are not an allocable 

administrative expense, and adjusted the calculation for overfunding accordingly. 

Based on the documentation provided in response to the lAR recommendation, the Audit 

revised its funding analysis and concludes the non-federal account did not overfimd the 

federal account. 

A ^ 

> V •- / ^ \ r 

\ 

r \ -v 

r 

. r 

y