FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

Febmary 9, 2011 

MEMORANDUM 

To: 

Through: 

From: 

By: 

Subject: 

The Commission 

Alec Palmer 

Acting Staff Director 

Patricia Carmona * 

Chief Compliance Officer 

Joseph F. Stoltz 

Assistant Staff 

Audit Division f 

Martin L. Favin 

Audit Manager 

Terrence J. O'Erien^^^S^^ 

T ^aA AiiHit-nr ' Lead Auditor 

Audit Division Recommendation Memorandum on the Georgia Federal 

Elections Conunittee (A07-14) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit 

Reports), this Audit Division Recommendation Memorandum on the Georgia Federal 

Elections Committee (GFEC) presents tiie Audit Division's recommendations to the 

Conunission as a resiilt of the June 16, 2010 audit hearing on GFEC's Draft Final Audit 

Report (DFAR) - see attached. 

The issue presented by GFEC representatives at the audit hearing related to 

Finding 1 - Misstatement of Financial Activitv. and more specifically with the component 

of that finding dealing with GFEC not reporting activity from a bank account used to 

make payroll disbursements that contained both federd and non-federal fimds. The Audit 

Division and Office of General Coimsel (OGC) agree tiiat no new legal issues or 

significant factual issues were raised during the audit hearing. GFEC set up a payroll 

account and made several transfers into it from both its federd and non-federd accoimts. 

Then GFEC paid both its federal and non-federal employees from tiiis accoimt. This 

account, which GFEC counsel stated was used like an escrow account, was setup to 

accommodate its payroll vendor who refused to process payroll from multiple accoimts. 

The audit report concludes that this accoimt served as an allocation account and thus 

required that all disbursements from the account should be reported. 
As OGC points out in its memorandum on the audit hearing (see attached), GFEC 

cited 11 CFR 106.7(f) in its presentation and stated that the payroll account was not tiie 

functional equivalent of an allocation account because allocation accounts are available 

"solely" for the payment of allocable expenses. OGC explains that die word "solely" in 

the regulation indicates that party committees may only mix federal and non-federal in tiie 

limited cucumstances and for the limited purposes provided in tiie regulations. The only 

types of accounts allowed are federal, non-federal, Levin, and allocation. 

The Commission has approved two audit reports South Dakota Republican Party 

('03-'04 cycle) and Dallas County Republican Party ('05-'06 cycle) which contained 

findings with situations where federal and non-federal funds had been mixed in the same 

account for purposes other than the payment of allocable expenses. In both cases the 

committees were required to disclose all activity from the account. In the South Dakota 

case, the committee made a variety of non-federal payments from a federal account 

because they did not maintain a non-federal checking account. In the Dallas County case, 

funds were transferred from the non-federal account to the federal account to pay for nonfederal mailings. Although neither of these matters related to payroll expenses, the same 

regulations applied to the GFEC issue. 

The Audit Division notes that the GFEC audit verified that non-federal funds were 

not used to subsidize federal payroll and that allocable payroll was disclosed correctly on 

Schedules H4. Significantly, subsequent to the interim audit report GFEC changed 

vendors to one that can draw funds from multiple accounts. As a result, federal and nonfederal funds are no longer commingled in one bank account. Thus in the future GFEC 

will be able to comply witii the regulations. 

Finally, a 1988 cycle audit report on the Georgia Republican Party contained a 

finding with a similar issue as the payroll account issue in the GFEC DFAR. In the 1988 

report, it was concluded that it was properly a non-federal accoimt and that the federal 

account was only requued to report transfers to the payroll account. After the 1988 cycle 

the regulations on the proper accounting and reporting of federal and non-federal accounts 

changed drastically. As OGC notes in the attached email discussing the impact of the 

1988 Georgia Republican Party report on tiie GFEC issue, 

"... [T]he Commission permitted committees to pay the entire amount of 

their diocable administrative expenses from their non-federal accoimts, 

which would then be reimbursed by their federal accoimts. See 

Explanation and Justification for Methods of Allocation between Federd 

and Non-Federal Accounts, 55 Fed. Reg. 26,058,26,065-66 (June 26, 

1990) (explaining prior system). Moreover, there were no mles requiring 

committees to report to the Coinmission anything except tiie 

disbursements by federal accounts to the non-federd accounts for the 

federal share of allocable expenses and, arguably, any debts owed by tiie 

federal accounts to the non-federal accounts for the federal share of 

already paid allocable expenses." 

As a result, it is the opinion of both the Audit Division and OGC that the 1988 case has no 

value in determining the correct reporting and classification of the payroll account in the 

GFEC matter. 
Recommendation 

The Audit staff recommends that the Conunission determine that the system 

employed by GFEC during the audited period did not comply with the regulations and that 

all activity from the payroll account was reportable. Given that GFEC has obtained a 

payroll service that will withdraw the appropriate amounts from the federal and nonfederal accoimts going forward, the Audit staff further recommends that the Conimission 

determine that the filing of amended reports at this time is unnecessary. 

Should an objection be received, Directive No. 70 directs the report be placed on 

the next regularly scheduled open session agenda. After approval of the reconunendation, 

the Proposed Final Audit Report will be prepared reflecting the Commission's 

determination and circulated for 72-Hour no objection consideration. 

Documents related to this audit report can also be viewed on Voting Ballot 

Matters. Should you have any questions, contact Terry O'Brien or Marty Favin at xl200. 

Attachments: 

- Draft Final Audit Report on the Georgia Federal Elections Conimittee 

- Memorandum from OGC Re: Audit Hearing on the Georgia Federal Elections 

Committee (dated July 1,2010) 

- Email from OGC Re: Impact of 1988 Final Audit Report on the Georgia 

Republican Party on 2006 Georgia Federal Elections Committee case (dated 

January 31,2011) 

1988 Georgia Republican Party Interim Audit Report Legal Analysis (dated 

December 16,1991) - OGC redacted Febmary 9, 2011 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on the 

Georgia Federal Elections 

Committee 

January 1, 2005 - December 31, 2006 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee tiiat is 

required to file reports 

under the Federal 

Election Campaign Act 

(tiie Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have inci 

the threshold ^ 

requirements for ^ 

substantial compliance 

with the Acl.' Thc audit 

determines whether llic 

comm^icc complied witii 

the ^^miaiiuiis, 

prohibitions and 

disclosure requirements 

of tiie Act. 

Future Actioi|^ 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Committe^p. 2^ 

The Georgia Federal Eleeli()ii>?()inniii(cc is a state party 

committee of the Georgia M^iiocratic Party headquartered in 

Atianta, GA. For more iiffirmation, sec the chart on the 

Committee Organiz^on,^?2. ' 

Financial Activity^ (p. 3) ^ 

• Receipts ^ ^ %^ ' 

o Contributions from Indi^uals ^ $831,598 

o Contributions Ironi Oilier Political Committees 349,991 

o ^ Transfers from .Mfili.'itcd Party Committees 776,863 

o Offsets to Operating F.xpeiidiuires 13,928 

o Transfers Irom Non-l-cderal Accounts 1,193,210 

o Ot% l-cdcral Rcccipi^ 1,800 

%^iReieipLs $ 3,16730 

• DisbursSKnts 

o Operat^ Expenditures $1,815,099 

o Contributions to Federal Candidates 12,322 

o Coordinated Party Expenditures 142,208 

o Cnnirihiifion Refiinds 5,800 

o Federal Election Activity 701,728 

o 'rransfers to Non-Federal Accounts 460,783 

o Other Disbursements 2,047 

^ Total Disbursements $3,139,987 

Findings and Recommendations (p. 3) 

• Misstatement of Fuiancial Activity (Finding 1) 

• Payment of Federal Activity with Non-Federal Funds 

(Finding 2) 

• Disclosure of Occupation/Name of Employer (Finding 3) 

2 US.C. §438(b). 
Draft Final Audit Report of the 

Audit Division on the 

Georgia Federal Elections 

Comniittee 

January 1, 2005 - Decenfl^r 31, 2006 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Changes to the Law 1 

Part II. Overview of Committee ^ 

Committee Organization 2 

Overview of Financial Activity ^ 3 

Part III. Summaries ^ ^ 

Findings and Recommendations ^ ^ ' ^ 

Part IV. Findings and Recommendations 

Finding 1. Misstatement of Financiid Activity 6 

Finding 2. Payment of Federal Activity w ith Non-Fcilcral I'lmds 9 

Finding 3. Disclosure of Occupatiori/.Nimic ol L-inploycr ^ 13 
Parti 

Background 

Authority for Audit 

This report is based on an audit of tiie Georgia Federal Elections Committee (GFEC), 

undertaken by the Audit Division of the Federal Election Conimission (the Commission) 

in accordance with the Federal Election Campaign Act of 1971, as amended (the Act). 

The Audit Division conducted the audit pursuant to 2 U.S.C. §438(b), which permits tiie 

Coinmission to conduct audits and field investigations of any polilical committee that is 

required to file a report under 2 U.S.C. §434. Prior to condu^^ any^udit under this 

subsection, tiie Commission must perform an internal revie\^r reports filed by selected 

conimittees to determine if tiie reports filed by a particular coininiticc meet the threshold 

requirements for substantial compliance with the Act. 2^S.C. §1381 b). 

Scope of Audit . \ 

Following Commission approved proceduresf€ic Audit staTf evaluated various factors 

and as a result, this audit examined: ^ ^ 

1. The disclosure of individual contributors' occupiitioii and name of employer; 

2. The disclosure of disbursements, llcbis and obligations: 

3. The disclosure of expenses allocated between federal, luiii-ledcral, and Levin 

accounts; % 

4. The consistency between reported fig^s and Inuilc records; 

5. The completeness of ioeo;\K: and, 

6. Other coinmittee opcr;ii iciis necessary to^e reviewr 

Changes to the Law 

On December 1, 2005. tiie Coniinis<ioM voted to amend its mles to require state, district 

and local [^y commiltees to pay iis administrative expenses the salaries, wages and 

fringe benefits of employees who spend 25 percent or less of theu* compensated time in a 

moB^ on federal election activity (I'lI.A) or activity in connection with a federal election 

("covered employees"). Thc previmis regulation that allowed party conimittees to use 

non-federal luiuls lor salaries and wages for covered employees was stmck down by tiie 

Supreme Coui r in .Shays v. FEC. The revised mle became effective on January 19,2006. 

(See Finding* 2. Payment of Federal Activitv with Non-Federal Funds). 
Part II 

Overview of Committee 

Coinmittee Organization 

Important Dates Georgia Federal Elections Committee 

• Date of Registration June 14, 1976 

• Audit Coverage January 1,2005 - December 31,2006 

Headquarters Atianta, (l k 

Bank Information 

• Bank Depositories 

• Bank Accounts 6^deral, 6 lion-Federal, 1 Levin 

«^ -—. - -

Treasurer 

• Treasurer When Audit Was Conducted <i 

• Treasurer During Period Covered by Audit 

Re^^empleton 

J^^ " biSantis" ' 

Management Information 

• Attended FEC Campaign Finance Seminar ^ Yes ^ 

Software Package Yes 

• Who Handled Ai eDuiiting and Kecordkeep^^asks Paid Staff 
Overview of Financial Activity 

(Audited Amoimts) 

Federal Cash on hand @ January 1,2005 $17,342 

0 Contributions from Individuals $831,598 

o Contributions from Other Political Committees 349,991 

o Transfers from Affiiiated Party Committees 776,863 

o Offsets to Operating Expenditures 13.928 

o Transfers from Non-Federal Accounts 1,193,210 

o Other Federal Receipts 1,800 

Total Federal Receipts s ^ $3,167,390 

0 Operating Expenditures $1,815,099 

o Contributions to Federal Candidates 4 12,322 

o Coordinated Party Expenditures M 142,208 

o Contribution Refunds . \ 5,800 

o Federal Election Activity ^ 701,728 

o Transfers to Non-Federal accounts ^ ^ * 460,783 

o Other Federal Disbursements --^"^ 2,047 

Total Federal Disbursements ^ $3,139,987 

Federal Cash on hand @ December 31,2006 $44,745 

Levin Cash on hand @ January 1,20()5 $6,886 

Total Levin Receipts % f 750 

Total Levin DisbursenieiiLs 7,210 

Levin Cash on hand Decemi)er 31, '^^^'^ 

f 

^ $426 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

A comparison of GFEC's reported financial activity to bank records revealed a 

misstatement of receipts and disbursements in both 2005 and 2006; and an understatement 

of cash at December 31, 2006. In 2005, GFEC under reported r^^ ^ and disbursements 

by $523,109 and $523,965 respectively, and in 2006 GFEC un|Kre^rted receipts by 

$126,313 and disbursements by $100,422. GFEC's repor^pa'ih balance at December 31, 

2006 was understated by $26,261. The Audit staff recon|^nded iluii GFEC file amended 

disclosure reports to correct tiie misstatements. In respoi^ GFEC followed tiie Audit 

staff's recommendation by amending its reports f^:dl ofthe discrepancies witii the 

exception of the activity related to its payroll account. G^EC did not nuikc adi^tments for 

its payroll account contending that it is not a fbderal .iccouiii, but one which wICcreated to 

facilitate its payroll processing. GFEC contends that the non-l'kleral funds^id through 

this account are not reportable to tiie Conunission. (For more detail, see p. 6) 

Finding 2. Pajrment of Fecieral Activity with Non-Federal Funds 

Disclosure of Salaries and Rela^l Expenses 

GFEC failed to provide supporting docui^itation deuiilinu il^time spent on federal 

activities for employees wlio>e eamings ai^^^ed pu\Toll expenses were allocated on 

Schedules H4. GFE^^poried salaries and^^ted expeKes on Schedules H4 totaling 

$231,366. Absent the supporting documenta&i, GFEC should have disclosed tiiese 

payments on Sch^ulcs 13. The^iidit staff rec^^ended that GFEC either provide the 

supporting documentation niei^piiiied abm e or bend its reports to correctly itemize its 

salaries and relaied expenses us lOO'f federal activity on Schedules B. In response, 

GFEC^ovideil deelaraiions liiim ils employees whose salary payments were originally 

allocaieu on Schedules 114 that show ilfBse payments were allocable and therefore 

correctiy reported. ^ 

Funding by the Non-Federal Account for Possible Federal Actiuity 

GFEC made 68 transfers totaling $628,254 from its non-federal accounts into a federal 

account it used to make (fayroll disbursements. Without supporting documentation to 

show otherwise, the Aiulit staff considered all of the disbursements made from GFEC's 

payroll account to be 100% federal activity reportable on Schedules B. The Audit staff 

recommended that GFEC demonstrate that its disbursements for salaries and related 

expenses are allocable to its non-federal account. Absent such a demonstration, the 

interim audit report noted tiiat GFEC would be required to transfer $478,715^ from its 

federal account to its non-federal accoimt as payment for its share of federal expenses. In 

response, GFEC provided declarations from several employees attesting tiiat they spent 

litUe or no time working on federal activities during tiie months in which all or a portion 

See Facts and Analysis section for calculation. 
of their payroll was paid with non-federal funds. As a result no transfer to the nonfederal accounts is needed. (For more detail, see p. 9) 

Finding 3. Disclosure of Occupation/Name of Employer 

A review of contributions from individuals revealed that 71 contributions totaling 

$170,474 lacked, or did not adequately disclose, the contributor's occupation and/or 

name of employer. Furthermore, no evidence was provided that "best efforts" was made 

to obtain, maintain, and submit tiie information. The Audit staff recommended that 

GFEC provide evidence that it exercised best efforts or contact each contributor lacking 

this information, submit evidence of such contact, and disclose s^^^ormation received 

on Schedules A. In response, GFEC filed amended reports discl^mg^the information it 

had acquired as a result of its contact with the contributors. 

(For more detail, see p. 13) 
Part IV 

Findings and Recommendations 

I Finding 1. Misstatement of Financial Activity 

Summaiy 

A comparison of GFEC's reported financial activity to bank records revealed a 

misstatement of receipts and disbursements in both 2005 and 2006; and an 

understatement of cash at December 31,2006. In 2005, GFEC under reported receipts 

and disbursements by $523,109 and $523,965 respectively, an^n 2()@6 GFEC under 

reported receipts by $126,313 and disbursements by $100,422. (JPEC's reported cash 

balance at December 31,2006 was understated by $26,261. The Audit staff 

recommended that GFEC file amended disclosure reportll^ correct the misstatements. 

In response, GFEC followed the Audit staff's reconmiendation by ainen^ng its reports 

for all of the discrepancies with the exception of tiie activity related to i^payroll account. 

GFEC did not make adjustments for its payrojiaccount colluding that it is nQpli4 federal 

account, but one which was created to facilitate iis pa\ioll ^i^psing. GFEC contends 

that the non-federal funds paid through this accouni iirc not reportable to the 

Commission. r 

Legal Standard 

Contents of Reports. Each report must\liselosc: ^ 

• The amount of cash on hand at the be^^iujg and end ol the reporting period; 

• The total amoimt oj^cccipi.s lor the repoWig perioihind for the calendar year; and 

• The total ciinount of disbursements for th^^porting period and for the calendar year; 

• Certain transadioiis that re(|iiire itemization on Schedules A (Itemized Receipts), 

Schedules B (Itemized Disbiirseiiienisy^Sdbcdiiles H3 (Transfers from Nonfederal 

Accounis fgr Allocated T-'ederul/Nonf(^^rActivity), or Schedules H4 (Disbursements 

for Allocated l-cdcraI/Noiifcdcral Activity). 2 U.S.C. §434(b)(l), (2), (3), (4), and (5) 

andi4M(e)(2), (3). and (4). f 

Facts and Analjrsis ^ 

The Audit NinjT leeonciled CJI^C'S reported financial activity to its bank records for 2005 

and 2006. Belov aic charts that outline the discrepancies in both years followed by 

explanations of the ini^sisiSments, if known. 

20U5 Activity ^ 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 1,2005 

$16,116 $17,342 $1,226 

Understated 

Receipts $414,202 $937,311 $523,109 

Understated 

Disbursements $418,781 $942,746 $523,965 

Understated 

Ending Cash Balance 

@ December 31,2005 

$11,537 $11,907 $370 

Understated 
Beginning Cash on Hand as of January 1,2005: 

The $1,226 understatement of beginning cash on hand was due to prior period errors. 

+ 

+ 

+ 

The understatement of receipts resulted from the following: 

• Unreported transfers: non-federal accounts to payroll account^ 

• Unreported contributions from political conimittees 

• Unexplained difference 

Understatement of Receipts 

The net understatement of disbursements resulted from the foUowinu: 

• Unreported disbursements made from payroll account + 

$505,984 

17,000 

125 

Unreported transfers: federal accounts to non-federal ag 

Inter-account transfers from federal accounts to payri 

account erroneously reported 

Unexplained difference ^ 

Net Understatement of Disbursements 

unis 

$523,109 

$500,014 

34,018 

2,895 

7,172 

3523,965 

2006 Activity *N ^ 

Reported B^ink Records Discrepancy 

Opening Cash Balance 

@ Januaryl, 2006 _ 

Receipts 

Sll..^37 

" $2,1%76(, 

SI 1.907 $370 

Understated 

Opening Cash Balance 

@ Januaryl, 2006 _ 

Receipts 

Sll..^37 

" $2,1%76(, $2.2.^0,^79 $126,313 

Understated 

Disbursements $2,096^r 52,197,242 $100,422 

Understated 

$26,261 ~" 

Understated 

Ending Cash ^^ance 

@ December 31, 200^ 

$18,483r $44,744 

$100,422 

Understated 

$26,261 ~" 

Understated 

The net u^Msiatenicni ol receipis re.sulied'from the following: 

• Unreported triiii^lers: non federal accounts to payroll account 

• Ti an.sfei from political commiuee not reported 

• Unexplained difference ^ 

Net Understatement of Receipts 

The net understcitcmcni of disbursements resulted from the following: 

• Unreported disbursements made from payroll account 

• Reported transfers from federal accoimt to non-federal 

account not traced to bank 

• Unreported transfers: federal accoimt to non-federal account 

• Unexplained difference 

Net Understatement of Disbursements 

+ 

+ 

$122,391 

5,000 

1,078 

+ 

+ 

$126,313 

$122,391 

27,550 

258 

5,323 

$100,422 

^ GFEC paid both federal and non-federal staff firom this account but did not report the majority of the 

account activity to the Conunission. Since payments for federal payroll were made from this account, the 

Audit staff considered it a federal account. 
On December 31,2006, the cash balance was understated by $26,261 as a result of tiie 

errors described above. 

In both 2005 and 2006 the primary reason for the understatement of receipts and 

disbursements was GFEC's failure to properly report activity to and from its payroll 

account. GFEC, which did not consider this account to be a federal account, made 

several transfers into this account from both its non-federal and federal accounts and paid 

both its federal and non-federal employees from the account. It should be noted that only 

33% of tiie payroll account's activity was reported on GFEC's disclosure reports to the 

Commission.* ^ 

The Audit staff presented this matter at the exit conferen^#Cil-l:(' representatives 

disagreed that the payroll account was a federal account "fi l exphiined that the payroll 

account was used like an "escrow account." They s^^^tt this aeciMint was created to 

accommodate GFEC's payroll processing vendo^^ychex, which woiW^iioi draw funds 

to process payroll from multiple accounts. GI-I.:CT re|)resetetives opined iluil tiifs account 

was not a federal account and its non-federar:K-iivitv uas lAceportable to the 

Commission. 

It is the opinion of the Audit staff that .since GFEC made diNbiirsements from the payroll 

account for both federal and non-federal nuyrolI. the aceount fiiiiclToiied as an allocation 

account and all activity to and from this^^ouiii WUM reportable to the Commission on 

Schedules A, B, H3, and/or H4. In Findii^^^the inlerini audit report. Payment of 

Federal Activitv with Ij^n-l cdci td Funds, j^mudit staff stated that since GFEC did not 

maintain monthly logs, time sheets or affida^^ for its employees, it was not possible to 

determine whetiie#pii\i'^ should have been pFid wholly from the federal account, the 

non-federal account, or^ociiled helween the l^'o accoimts as administrative expenses. 

Therefore, il was slated tiiai GFI-iC should report tiiese disbursements on Schedules B 

until it demonstrated what percentage of itsemployees' time was spent working on 

federal election activiiy. 

Interim Audit Report ^eccmmendation and Committee Response 

The. Audit staff recommended that, within 30 days of service of this report, GFEC: 

• Amend its 2005 and 2(K)6 reports to correct the misstatements noted above, including 

appropriate Sehedt^s A, B, H3, and H4. 

• Report non-fedeip payroll disbursements on Schedules B as "Other Disbursements," 

line 29 of tiie detailed sunimary page and report the corresponding transfers from the 

non-federal account on Schedules A as "Other Federal Receipts," line 17. 

• Include a memo text with each amended item stating that "the transactions are being 

disclosed as a result of tiie 2005-2006 cycle FEC audit." 

• Amend tiie cash balance on its most recentiy filed report with an explanation that it 

resulted from audit adjustments from a prior period. It was furtiier recommended that 

* In 2005 only 2% of GFEC's salaries or related expenses were for employees who spent more than 25% of 

their time on FEA activities or activities in connection with a federal election. In 2006,70% of GFEC's 

salaries or related expenses were for this type of activity. 
GFEC reconcile the cash balance on its most recent report to identify any subsequent 

discrepancies that may impact adjustments recommended by the Audit staff 

In response, GFEC filed amendments correcting the errors detailed above not related to 

its payroll account. With regard to the unreported payroll account transactions, GFEC 

argues that this account is a "pass through escrow" account, not a federal account, and 

GFEC does not intend, at tiiis time, to report the non-federal portion of the payroll 

account's activities to the Commission. 

GFEC reasons that the enactment of the Bipartisan Campaign Rc^m Act of 2002 

(BCRA) altered the process of paying payroll expenses by stat^^l^^^^jommittees by 

creating two distinct challenges. First, the conunittee would ha\'c to estimate each 

employee's activities so that appropriate federal or non-f^leral funds were used to pay 

them. Second, GFEC's payroll company encounteredjpf&ems wiili ilie arrangement of 

debiting two different bank accounts for payroll. ^ ^ 

Based upon the above, GFEC believes tiiat th^^uNroll accent was a transmiiiul^ccount 

for both federal and non-federal fimds, rather than a leder^^a)unt. GFEC believes that 

the disclosure of the non-federal portion of this accouni ^ul d be incorrect and 

unnecessary. GFEC will, however, ^^i^d its reports if concludes it is 

necessary. To avoid possible confusion b) an\ ie:iders o?CiI-I-!C"s reports, the Audit staff 

further recommends tiiat GFEC should include memo text enirics^ith any non-federal 

activity it may disclose, stating that the ii tmsiieiions are lor non-allocable non-federal 

activity. f 

Although the enactineni ol ihe BCRA did cl^^e tiie way payroll is allocated, it did not 

create for the firsts inie^^ need to allocate pa^^^ That requirement had been in place 

for a number of years, "^^^udit NtafI believe^^ payroll account served as an 

allocation accouni ii|ed t(^ake hoih fec^^^ d non-federal disbursements using both 

federal non-l'ed(|ral funds. Allocation accounts are federal accoimts from which 

commitlees must report all federal and non-federal activity. 

I Finding 2. Payment o/Federal Activity with Non-Federal Funds | 

Smnmary 

Disclosure qf ScS^^ and Related Expenses 

GFEC failed to provjle supporting documentation detailing the time spent on federal 

activities for employees whose eamings and related payroll expenses were allocated on 

Schedules H4. GFEC reported salaries and related expenses on Schedules H4 totaling 

$231,366. Absent the supporting documentation, GFEC should have disclosed these 

payments on Schedules B. The Audit staff recommended that GFEC either provide the 

supporting documentation mentioned above or amend its reports to correctly itemize its 

salaries and related expenses as 100% federal activity on Schedules B. In response, 

GFEC provided declarations from its employees whose salary payments were originally 

allocated on Schedules H4 that show these payments were allocable and therefore 

correctly reported. 
10 

Funding by the Non-Federal Account for Possible Federal Actiuity 

GFEC made 68 transfers totaling $628,254 from its non-federal accounts into a federal 

account it used to make payroll disbursements. Without supporting documentation to 

show otherwise, the Audit staff considered all of the disbursements made from GFEC's 

payroll account to be 100% federal activity reportable on Schedules B. The Audit staff 

recommended that GFEC demonstrate that its disbursements for salaries and related 

expenses are allocable to its non-federal account. Absent such a demonstration, tiie 

interim audit report noted that GFEC would be required to transfer $478,715^ from its 

federal account to its non-federal account as payment for its share of federal expenses. In 

response, GFEC provided declarations from several employees attesting that they spent 

little or no time working on federal activities during the months in w h|ch all or a portion 

of their payroll was paid with non-federal funds. As a result4io transfer to the nonfederal accounts is needed. 

Legal Standard \ ^ 

A. Accounts for Federal and Non-federal Actypjly. A party coiiiniiiiee that finances 

political activity in coimection with both federa laiid non-federal elections shull^stablish 

two accounts (federal and non-federal) and aflociiie <<liared excuses, those dial 

simultaneously support federal and non-federal eleciion activity between the two 

accounts. Altematively, the committ^may conduct boih lederal and non-federal activity 

from one bank account, considered a Ederal account. 11 C'l -'K ji l02.S(a)(l)(i). 

B. Paying for Allocable Expenses. Co^iission re^ulationsjolier party committees two 

ways to pay for allocable shared federal/n%-i^k:ral e.xpcnsds. 

• They may pay the entire amount of t^Miared exiiense from the federal account 

and transfer liinds tromMhe non-feder^ccount to tiie federal account to cover the 

non-federab.sharc ol that e.K|)ense; or 

• They may establish a separaie. federal allocation account into which the committee 

deposits funds from botii its federal and non-federal accoimts solely for the 

pumose of paying the allocable expenses of shared federal/non-federal activities. 

^ 11 CFR §106.5(g)(l)(i) and (iiXA). 

C. Reporting Allocable iSxpcnsei^A political conunittee tiiat allocates federal/nonfederal expenses must repon each disbursement it makes from its federal account (or 

separate allocaiicMi accoui|t) to pay for a shared federal/non-federal expense. Committees 

report tiiese kinds of disb^ements on Schedules H4. 11 CFR §104.10(b)(4). 

D. Costs allocable 6y State party committees between Federai and Non-federal 

accounts (Effective prior to January 19,2006). State party conunittees must pay salaries 

and wages from funds tiiat comply with State law for employees who spend 25% or less of 

their time m any given month on federal election activity. 11 CFR § 106.7(c)(1). 

See Facts and Analysis section for calculation. 
11 

E. Costs allocable by State party committees between Federal and Non-federal 

accounts (Effective on January 19,2006). State party committees must eitiier pay 

salaries, wages, and fringe benefits for employees who spend 25% or less of their time in 

a given month on federal election activity with fimds from their federal account, or witii a 

combination of fimds from their federai and non-federal accounts. 11 CFR § 106.7(c)(1), 

as amended January 19,2006. 

F. Recordkeeping: Salaries and Wages. Committees must keep a montiily log of the 

percentage of time each employee spends in connection with a Federal election. Salaries 

and wages for employees who spend more than 25% of their compensated time in a given 

month on Federal election activity or activities in connection wiih a ^deral election must 

be paid only from a Federal account. 11 CFR §106.7(d)(l)(iij). 

Facts and Analysis ^ ^ 

Disclosure of Salaries and Related Expetiscs ^ ^ 

The Audit staff's review of payroll expenses inc^^ed tiiat GFEC did nol maintain 

monthly logs, time sheets or affidavits for its employees ttestablish how mi^^time was 

devoted by each employee to Federal and noii-lederal acliviil^ Therefore^^^sed on the 

regulatory change effective January 19, 2006 (See pagc I. Changes to tiie Law), the 

Audit staff applied tiie following to assess salary expenditures: 

1. For salary and payroll tax payments nindc before January 19. 2006: 

If there is monthly log, time shee^r affidavit which s|^tes that: 

• the time spent on federal activitms l^s than or e^al to 25%; the payment can 

be made from thc noii-lederai ac^Et and it reiiuires notiiing further of the 

federal a)mniittee; or 

• the time4.peiii gn federzd activity ex^cd^ 25%, or for which there is no 

docunieiiiaiioii iiidicaiiiii: a lesser percentage, the federal coinmittee must 

di^cio.^e :iiese i^aymeiUs on Schecpl^ B, Line 30b, as non-allocable federal 

-^'leciion .icliviiy (I-I-IA). 

2. For saUuy and payroll lax payments made on or after January 19, 2006^: 

If £ere is monthly log, tim^^sheet or affidavit which states that: 

• the lime spent on federal activity each month is none, or 0%; this may be paid 

by Ihc non-federal account and requires notiiing further of the federal 

commitlee; or " 

• the time spent on federal activity is less than or equal to 25%; this payment 

must be niraide from the federal accoimt and disclosed by the federal committee 

on Schedules H4 as allocable administrative activity, for which reimbursement 

may be sought from the non-federal account at the administrative ratio; or 

• the time spent on federal activity exceeds 25%, or for which tiiere is no 

documentation indicating a lesser percentage, the federal conimittee must 

disclose these payments on Schedules B, Line 30b, as non-allocable FEA. 

^ GFEC did not allocate any salary or wage payments on Schedules H4 before the regulations changed on 

January 19,2006. 
12 

The Audit staffs review revealed that GFEC failed to maintain supporting 

documentation detailing the time spent on federal activities for employees whose salaries 

and related expenses, reported on Schedules H4, totaled $231,366. Absent the supporting 

documentation, GFEC should have disclosed these salary and related expenses as nonallocable FEA on Schedules B, Line 30b of the detailed sununary page. 

The Audit staff discussed this matter with GI^C's representatives during the audit and 

requested monthly logs, timesheets and affidavits. GFEC representatives were unable to 

locate any of the items requested. 

Fundinp by the Ntm-Federal Account fo r Possible Fedi^^h^tiuity 

GFEC made 68 transfers totaling $628,254 from its non-fedei al accounts into a federal 

account it used to make payroll disbursements. Without siipi)orting documentation, the 

Audit staff considered all of the disbursements made froni CiFEC's payroll account to be 

non-allocable F^A, reportable on Schedules B, Lin^^^i^the deUiilcd summary page. 

The Audit staffs analysis indicated that during^he period^^vered by the iai^^excluding 

payroll, GFEC transferred $149,539 less thaii it could hav^p^ non-federa^^federal 

accounts for allocable expenses. A similar analysis of GI-EC's payroll account for tiie 

same period showed that GFEC transferred $628,254 more than it should have from nonfederal accounts into its payroll accoi^^^ll payroll was considered 100% Federal. This 

resulted in GFEC's non-federal account^^||inding its fedcral/ptyroll accounts by 

$478,715 ($628,254-$149,539). % ^ 

During audit fieldwork^ihe Audit staff madi%$^eral requests for GFEC to provide 

monthly logs, time slieeis or noiai^zed affidams for its employees tiiat would 

demonstrate its nc^-fedeial acciiuht was not financing federal activity. GFEC did not 

provide any of the requested items. Al the exitjL'oiiference, GFEC representatives stated 

that tiiey did not believe any of the iiniepo|^^4ctivity from the payroll account was for 

federal ejection activiiy. The\ further statiSthat tiie accoimt used to pay these 

employees was not a federal accouni. 'I»he account was set up to accommodate GFEC's 

pa3^ll pr|jpessing comfiaiiy who would only process GFEC's payroll from a single bank 

account. iFherefore, GFliC believeCthe non-federal activity related to this account is not 

reportable to thc Commission. 

Interim Audit Repq^ Recommendation and Committee Response 

The Audit staff recommended that, within 30 calendar days of service of this report, 

GFEC: ^ 

• Provide monthly logs or time sheets attesting to the time spent by employees for 

the period employed by GFEC, or affidavits stating that these employees did not 

spend more that 25% of their time on Federal election activities or activities in 

connection with a Federal election, and amend its disclosure reports accordingly. 

• Report any disbursements that GFEC can show are solely non-federal on 

Schedules B, line 29 of tiie detailed summary page as "Other Disbursements." 

• Report any disbursements that GFEC cannot show are allocable or solely nonfederal on Schedules B, line 30b of the detailed summary page, as FEA. 
13 

• If no additional documentation was provided, GFEC was to reimburse the nonfederal account $478,715. 

• Include a memo text with each amended item stating that "the transactions are 

being disclosed as a result of the 2005-2006 cycle FEC audit." 

In response, GFEC provided declarations from several of its employees attesting that 

during relevant montiis in which the employees' payroll was funded entirely, or partially, 

by non-federal fiinds; that tiiey worked less than 25%, or no time at all, on activities in 

connection with a federal election. GFEC also noted that the Commission's regulations 

regarding payment of payroll for tiiose employees who did not meui tiie 25% threshold 

changed in January 2006 and that GFEC correctly amended its fihyroH, procedures to 

comply with these new requirements. 

Finding 3. Disclosure of Occupation/Name <|F Employer | 

Summary 

A review of contributions from individuals re^Mlcd^that 71 contributions totalmg 

$170,474 lacked, or did not adequately disclose, tMconirihiii^t^'s occupatiof and/or 

name of employer. Furthermore, no evidence was pio\ ided that "best efforts" was made 

to obtain, maintain, and submit the ii^orination. The .Audit staff recommended tiiat 

GFEC provide evidence that it exercised b^^gorts or contact each contributor lacking 

this information, submit evidence of su^^ohiaci. and discloswtiy information received 

on Schedules A. In response, GFEC file^meiided reports disclosing the information it 

had acquired as a result of its coiituci with ^^i^ntribwlors. 

Legal Standar^ 

A. Itemization Required for Contributions ®l h Individuals. A political committee 

other than an authorized comiiiitice musi iiemi/e any contribution from an individual if it 

exceeds S20 per calendar year, either by itself or when combined with otiier 

contributions from thc same conirihiitot. 2 U.S.C. §434(b)(3)(A). 

B. Required Information for Contributions from Individuals. For each itemized 

contribution from an indiv idual, the committee must provide the following information: 

• The conlributor's full name and address Xincluding zip code); 

• The coniribulor's occupation and the name of his or her employer; 

• The date of receipl (the date the committee received the contribution); 

• The amount ^ the contribution; and 

• The calendar year-to-date total of all contributions from the same individual. 11 

CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A). 

C. Best Efforts Ensures Compliance. When the treasurer of a political committee 

shows that the committee used best efforts (see below) to obtain, maintain, and submit 

the information required by tiie Act, the conunittee's reports and records will be 

considered in compliance witii tiie Act. 2 U.S.C. §432(h)(2)(i). 
14 

D. Definition of Best Efforts. The treasurer and the committee will be considered to 

have used "best efforts" if the committee satisfied all of the following criteria: 

• All written solicitations for contributions included: 

o A clear request for the contributor's full name, mailing address, occupation, 

and name of employer; and 

o The statement that such reporting is required by federal law. 

• Within 30 days after the receipt of the contribution, the treasurer made at least one 

effort to obtain the missing information, in either a written request or a 

documented oral request. 

• The treasurer reported any contributor information that, although not initially 

provided by the contributor, was obtained in a follow-uj^coii^unication or was 

contained in the committee's records or in prior repo|^^at the committee filed 

during the same two-year election cycle. 11 CFR^^$04.7(b). 

Facts and Analysis ..^i^^v ^ ^ 

A review of contributions from individuals reve^iiS that 71 contributions totaling 

$170,474 lacked, or did not adequately disclqs^^^contributor's occupation a^or 

name of employer. This represents 23% of the di^ar \ aly^. of individual contributions 

itemized by GFEC. Most of tiiese contributions were difiosed with a notation of 

"information requested." ^ 

The Audit staff asked a GFEC represenlalive lo jiio\ ide documeifation in support of their 

best efforts procedures. In response, tiie ^FEC represent at ivc^xplained that the original 

solicitations and follow-up leiiers to the c^r^Htors coiitained a request for the 

occupation and namej^^Miiployer informatlp and that My infonnation received would 

be provided to the auditors for re\'iew. To da%, no such information has been provided. 

The Audit staff discussed ihis mailer with GFEjPrepresentatives at tiie exit conference 

and provided a list oi the itemi/.ed contribl^is that lacked, or did not adequately 

disclose, the required occupation and/or a name of employer information. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommendc(^ tiiat, witiiin 30 days of receipt of tiiis report, GFEC take 

the followmg action: 

• Provide dociimeiiiation that it exercised best efforts to obtain, maintam and 

submit the requ^d contributor information; or 

• Make an efjinrt to contact those individuals for whom the requued information 

was not in GFEC files and provide documentation of such efforts (such as copies 

of letters/email to the contributors and/or phone logs); and, 

• File amended reports to disclose any information in GFEC's possession as well 

as mformation obtained in response to this recommendation. 

In its response, GFEC filed amended reports disclosing the occupations and names of 

employers it had obtained in accordance with the interim audit report reconunendation. 

A description of GFEC's attempts to gather information was submitted for the 
15 

contributors GFEC was unable to contact tiiat documents GFEC's best efforts to acquire 

the information. 

GFEC furtiier stated tiiat it has undertaken procedural changes to its operations to ensure 

ongoing compliance with best efforts regulations. 

••^'y&.. 

i^'i: 
FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

July 1, 2010 

MEMORANDUM 

TO: 

THROUGH: 

FROM: 

SUBJECT: 

Joseph F. Stoltz 

Assistant Staff Director 

Audit Division 

Alec Pahner 

Acting Staff Director 

Christopher Hughey 

Deputy General Counsel / 

Lawrence L. Calvert, Jr. ^^^^^ _ 

Associate General Counsel 

General Law and Advice 

Lorenzo Holloway 

Assistant General CouTisel V 

Public Finance and Audit Advice 

Allison T. Steinle AT$ 

Attomey 

Audit Hearing on the Georgia Federal Elections Committee (LRA 793) 

I. INTRODUCTION 

The purpose of this memorandum is to address in more detail some of the specific issues 

that were raised during the audit hearing in the above referenced matter, which was held on June 

16,2010. The audit hearing generally addressed the Commission's treatment of a payroll 

accoimt established by the Georgia Federal Elections Committee ("GFEC") to accommodate its 

payroll vendor, which would not draw GFEC's payroll from both its federal and non-federal 

operating accounts. As a result of this restriction, GFEC elected to set up a separate payroll 

account fix>m which it made 100 percent federal, allocable, and 100 percent non-federal 

disbursements. The Draft Final Audit Report ("DFAR") and our legal comments concluded that 

GFEC could use such an account to make its payroll disbursements, but should have reported 

any non-federal activity that passed through the account because it was the functional equivalent 

of an allocation account, from which all activity must be reported. This memorandum reaches 
Memorandum to Joseph F. Stoltz 

Audit Hearing 

Georgia Federal Elections Committee (LRA 793) 

Page 2 of3 

the same conclusion. If you have any questions, please contact Allison T. Steinle, the attomey 

assigned to this audit. 

n. RESPONSE TO ISSUES RAISED IN THE AUDIT HEARING 

As an initial matter, we wish to emphasize a point that was in our previous comments. 

As a legal matter, we believe that GFEC's entire course of conduct here—not just its failure to 

disclose its 100 percent non-federal payroll disbursements—violated the Commission's 

regulations. GFEC, citing 11 CF.R. § 106.7(f), stressed in its presentation at the hearing that the 

payroll account it established was not the functional equivalent of an allocation account, because 

allocation accoimts are available "solely" for the payment of allocable expenses. We agree that 

allocation accounts are available solely for the payment of allocable expenses. In our view, 

however, the import of the word "solel/' in section 106.7(f), and in the similar provisions in Part 

300 regarding Levin funds, is that it indicates that state and local party committees may only mix 

federal and non-federal funds in the limited circumstances and for the limited purposes provided 

in the regulations. 

GFEC's characterization ofthe payroll account was not as a federal account, a nonfederal account, or an allocation account, but as a sort of "other" account not provided for in the 

Commission's regulations. The Commission's regulations, however, explicitly set forth "the 

types of accounts" that are available to, and in some cases must be established by, a state, 

district, or local party committee. See 11 C.F.R. § 300.30. Those types are: non-federal, Levin, 

federal, and allocation. 11 C.F.R. § 300.30(b). The comprehensive regulatory scheme does not 

provide for any other type of account. 

Our analysis did not state that the GFEC's actions were consistent with the Commission's 

regulations. Rather, our analysis stated that the Commission could, essentially as an act of 

discretion, detennine that GFEC's specific actions here were reasonable given the Catch-22 

caused by Paychex's inability to draw payroll from separate bank accounts. This 

recommendation was consistent with the Commission's action in an undisclosed RAD referral 

several years ago. There, the Coinmission declined to open a MUR regarding a conimittee that 

faced the same problem with the same payroll vendor. 

Indeed, citing section 106.7(f), we reiterated "that the transfer and reimbursement mles 

ordinarily prohibit state party committees from transferring fimds from a non-federal account to 

reimburse a federal account for non-allocable, non-federal activity," and pointed out that "to 

ensure complete compliance with tiie law in the future, the Committee will have to choose a 

payroll vendor that will draw its payroll from its federal and non-federal operating accounts in 

compliance with the regulations." As GFEC pointed out at the hearing, it has since changed 

vendors to one that does have that capability, and GFEC is now in compliance with the law on 

this point. 

The rest of our comments, and the principal point of contention at the hearing, concerned 

whether, if GFEC's establishment and use of the payroll account was reasonable under the 

circumstances, it should be required to report all activity from that account. Our comments and 
Memorandum to Joseph F. Stoltz 

Audit Hearing 

Georgia Federal Elections Committee (LRA 793) 

Page 3 of3 

the DFAR concluded that the activity should be reported. Analogizing to the regulations 

regarding allocable activity at section 106.7(f) and the reporting thereof at 104.17(b), we noted 

that in the circumstances where the Conunission has permitted the mixing of federal and nonfederal money in the same account, committees have been required to disclose all of the activity 

in that account, including the non-federal portion. See 11 C.F.R. § 104.17(b); see also Audit 

Report on the South Dakota Republican Party (July 20,2009) (requiring disclosure of 100 

percent non-federal fimds paid out of an allocation account); Audit Report on the Dallas County 

Republican Party (Dec. 1,2008) (requiring disclosure of Levin funds). In our view, these 

interests exist whenever federal funds are mixed with non-federal funds in an account under a 

committee's control. The purpose of these disclosure requirements is to "allow the Commission 

to track the flow of non-federal fimds into federal accounts," and "ensure that the use of such 

funds is strictly limited to payment for the non-federal share of allocable activities." Explanation 

and Justification for Methods of Allocation between Federal and Non-Federal Accounts, 55 Fed. 

Reg. 26,058, 26,065-66 (June 26,1990). 

In this particular matter, the audit itself has accounted for all of the funds, federal and 

non-federal, that flowed into and out of the payroll account, and the Audit Division has verified 

that GFEC did not, in fact, use non-federal fimds to subsidize federal salaries. Indeed, with 

respect to its truly allocable payroll disbursements, GFEC transferred non-federal funds to its 

federal operating accoimt pursuant to section 106.7(f) and reported those allocations on Schedule 

H4 before it transferred funds from the federal account to the payroll account (for federal and 

allocated payroll) and from the non-federal account to the payroll account (for non-federal 

payroll). Moreover, as noted above, GFEC is no longer engaging in this activity since it has 

since changed its payroll vendor to one that can draw payroll from multiple accounts. Thus, the 

Commission may conclude that no purpose would be served in this case by recommending that 

GFEC amend its reports to reflect the payroll account's 100 percent non-federal activity. 

Regardless of what tiie Conunission concludes in tiiis particular matter, however, we 

continue to be ofthe view that state, district, or local party committees should use vendors that 

can draw payroll from multiple accounts in compliance with the Conunission's regulations. We 

also believe that as a general matter, whenever the Commission permits the mixing of federal 

and non-federal money in an account under a committee's control, it should require disclosure of 

tiie receipt and disbursement of all funds, federal and non-federal, entering and leaving the -

account. As the Coinmission noted in 1990, disclosure in these circumstances assists in 

determining whetiier non-federal fimds were used to subsidize federal expenses. It may also 

deter such subsidization. See 55 Fed. Reg. at 26,065-66. 
Lawrence Calvert/FECAJS To Joseph Stoltz/FECAJS® FEC 

01/31/2011 05:14 PM cc Lorenzo Holloway/FEC/US@FEC. Allison 

Steinle/FEC/US@FEC 

bcc 

Subject Fw: Georgia Federal Elections Committee 

I wanted to reiterate after our conversation that in our view, the treatment of a joint payroll account in a 1988 

cycle audit is of essentially no value in determining how to treat the payroll account issue in the Georgia 

Federal Elections Committee audit, or for that matter any similar issue in any audit of activity after the 1992 

election cycle. The reason is that the provisions of the Commission's regulations at issue here, including 

II C.F.R. 104.17,11 C.F.R. 106.7(f), and 11 C.F.R. 300.30(b) and their predecessors not only did not exist 

prior to 1992, but because in general the allocation regime predating the 1992 cycle was in certain 

important respects 180 degress different from that in place in 1992 and subsequent cycles. 

As Lorenzo has previously pointed out, under the allocation regime in effect prior to the 1992 cycle, the 

Commission permitted committees to pay the entire amount of their allocable administrative expenses from 

their non-federal accounts, which would then be reimbursed by their federal accounts. See Explanation 

and Justification for Methods of Allocation between Federal and Non-Federal Accounts. 55 Fed. Reg. 

26,058, 26,065-66 (June 26.1990) (explaining prior system). Moreover, there were no rules requiring 

committees to report to the Commission anything except the disbursements by federal accounts to the 

nonfederal accounts for the federal share of allocable expenses and, arguably, any debts owed by the 

federal accounts to the non-federal accounts for the federal share of already paid allocable expenses. The 

federal share only had to be calculated by the funds expended method or some other "reasonable basis." 

11 CFR 102.9(e) (1990 ed.) Under this regime, not only was It permissible to regard a joint payroll account 

of the type at issue in the 1988 Georgia Republicans audit as a non-reportable, non-federal account, it is 

hard to see how it could been regarded as anything else. 

The Commission's denial of a petition for rulemaking on the subject of allocation was addressed in 

Common Cause v. FEC. 692 F. Supp. 1391 (D.D.C. 1987), in which the District Court held that the 

allocation regime provided "no guidance whatsoever on what allocation methods may be used by state or 

local party committees" and remanded the matter to the Commission. The allocation rules, promulgated in 

1990 and first in effect for the 1992 election cycle, were the result. Now, for the first time, it was not 

permissible for committees to pay allocable expenses from their non-federal accounts. Instead, for the first 

time, the Commission permitted - indeed, required - the limited transfer of non-federal funds into federal 

accounts for the purpose of paying the non-federal share of allocable expenses. Moreover, for the first 

time, the Commission promulgated detailed rules requiring the reporting of transfers-in for these purposes 

and the itemization (complete with breakout of federal and non-federal shares) of specific allocable -

disbursements. This "comprehensive scheme," as we described it, was refined and further expanded 

upon in the rulemaking carried out to implement BCRA. 

Thus, prior to 1992 the Commission permitted the payment of allocable expenses from non-federal 

accounts provided those accounts were reimbursed a "reasonable" amount within a "reasonable" time by 

the corresponding federal account, and no itemization of specific disbursements to specific payees was 

required because the nonfederal account handled that part. Beginning in 1992 the Commission required 

the payment of administrative expenses from federal accounts into which allocable non-federal shares were 

transferred, and as we've commented on previously in this matter it requried the reporting of every cent that 

came into or went out of such accounts. Thus, it seems to us that what the Commission permitted in terms 

of an account from which allocable expenses were paid in 1988 is of essentially no use in determining what 

was permissible in 2006, or for thaf matter in 1992 or later. 

Please let me know if we can be of any further assistance. 
FEDERAL ELECTION COMMISSION 

WASHINGTON. D C 20463 

Deceniber 16, 1991 

HCNORANDUM 

TO: 

THROUGH: 

FROM: 

Robert J. Costa 

Assistant Staff Director 

Audit Division 

f J 

John C. Surina 

Staff Directo^ ^ 

Lawrence H. Noble 

General Counsel 

Kim L. Bright-Coleman 

Associate General Cou rrsel 

Carmen R. Johns 

Assistant Gener unsel 

SUBJECT: Proposed Interim Audit Report on the 

Georgia Republican Party 

(LRA #378/AR-91-36) 

I. INTRODUCTION 

The Office of General Counsel has reviewed the proposed 

Interim Audit Report on the Georgia Republican Party (**the 

Committee"), submitted to this Office on October 15, 1991. The 

following memorandum summarizes our legal analysis o£ the 

findings in the proposed report.1/ Should you have any questions 

concerning our comments, please contact Mary Tabor, the attorney 

assigned to this audit. 

1/ Parenthetical references are to the placement of findings 

Tn the proposed report. Throughout our comments, "FECA" refers 

to the Federal Election Campaign Act of 1971, as amended, 2 

U.S.C. S§ 431-455. 
Georgia Republican Party 

(LRA #378/AR-91-36) 

Page 2 

II. SEPARATION OF FEDERAL/NON-FEDERAL ACTIVITY (II.A.) 

The Audit Division determined that during 1987 the 

Committee conducted financial activity in connection with 

federal elections from four accounts. The Committee, maintained 

an operating account and a money market account solely for 

federal activity, and maintained another operating account and a 

payroll account for joint federal and non-federal activity. The 

Audit staff decided that because the Committee used the shared 

payroll account exclusively to pay staff salaries, i t need only 

report transfers from the federal account to reimburse the 

shared account. The Audit staff did not include this account in 

i ts bank reconciliation for 1987 activity. However, the Audit 

staff found that the shared operating account made expenditures 

for costs other than administrative expenses allocable under 11 

C.F.R. § 106.1(e) and, therefore, included that account in its 

bank reconciliation to determine correct reportable activity for 

1987. 

The Audit staff's reconciliation of the two federal 

accounts and the shared operating account to the Committee's 

1987 disclosure reports found that the beginning cash balance 

was overstated by $367.23, receipts were understated by 

$184,355.43 and the cash balance on December 31, 1987 was 

understated by $8,015.12. The Audit staff contends that the 

discrepancies represent non-federal activity within the shared 

operating account. However, the auditors were not able to 

perform an in-depth analysis of the differences due to deficient 

recordkeeping by the Committee. In addition, the proposed 

Interim Audit Report notes that the Committee filed an amended 

report for 1988 correcting similar misstatements of financial 

activity. The proposed report recommends that the Committee 

organize its disbursement records for 1987 and its receipt 

records for January 1, 1987 through June 30, 1988 so that the 

Audit staff can differentiate federal from non-federal activity, 

or in the alternative, amend its disclosure reports to correctly 

itemize receipt and disbursement activity for those time 

periods. 

We concur with the Audit Division's recommendation. Party 

committees which finance political activity in connection with 

both federal and non-federal elections must either establish a 

separate federal account or a separate political committee to 
Proposed Interim Audit Report 

Georgia Republican Party 

(LRA #378/AR-91-36) 

Page 3 

receive only contributions subject to the prohibitions and 

limitation s of FECA. 11 C.F.R. SS 102.5(a)(1)(i) and (ii) . The 

Committee established separate federal accounts, but apparently 

faile d to maintain it s bank accounts and supporting 

documentation in a manner that would allow the Audit staff to 

verif y compliance with section 102.5(a)(1)(i). See 11 C.F.R. 

SS 102.9(a) and (b); see also 11 C.F.R. SS 104.lTrH)(l) and 

(3)(requiring Committees to maintain and make available to the 

Commission sufficientl y detailed records). 

In addition, the regulations permit a committee to allocate 

administrative expenses, including salaries, on a reasonable 

basis between federal and non-federal accounts. 11 C.F.R. 

S 106.1(e). While we concur with the Audit staf f that the 

regulations allow the Coromittee to maintain a single payroll 

account, this Office recommends that the Audit staff determine 

whether the Committee's federal account reimbursed the payroll 

account for a reasonable share of staf f salaries.2/ 

2/ The Audit staff properly allocated the Committee's 1987 

expenditures pursuant to the Commission's prior regulations. 11 

C.F.R. S 106.1(e). The Commission's revised regulation,.11 

C.F.R. S 106.5(d), requires the so-called "ballot composition 

method" of allocation between federal and non-federal accounts 

maintained by state party committees. Under that method 

committees are required to allocate administrative expenses 

according to the ratio of federal offices on the ballot to total 

federal and non-federal offices on the ballot, with the federal 

offices given proportionally more weight. See Explanation and 

Justification for 11 C.F.R. S 106.5, 55 Fed. Reg. 26,064 (June 

26, 1990). Under the prior regulations, the Commission 

permitted several alternative allocation methods. 
Proposed Interim Audit Report 

Georgia Republican Party 

(LRA #378/AR-91-36) 

Page 4 
Proposed Interim Audit Report 

Georgia Republican Party 

(LRA #378/AR-91-36) 

Page 5