FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

June 23, 2017 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson LJS 

Acting General Counsel 

Lorenzo Holloway MJ"? for LH 

Assistant General Coimsel 

Compli£Uice Advice 

Margaret J. Forman M J"? 

Attorney 

SUBJECT: Proposed Draft Final Audit Report on the Hawaii Democratic Party (LRA 1024) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Draft Final Audit Report 

("proposed DFAR") on the Hawaii Democratic Party ("HDP or Committee"). The proposed 

DFAR contains seven findings: Misstatement of Financial Activity (Finding 1), Receipt of 

Contributions that Exceed Limits (Finding 2), Receipt of Impermissible Funds (Finding 3), 

Reporting of Debts and Obligations (Finding 4), Recordkeeping for Employees (Finding 5), 

Failure to File Reports and Properly Disclose Independent Expenditures (Finding 6), and 

Allocation of Expenditures (Finding 7). We generally concur with the findings except as 

discussed in our comments on Findings 1 and 3. If you have any questions, please contact 

Margaret J. Forman, the attorney assigned to this audit. 
LRA 1024 Hawaii Democratic Party 

DFAR Legal Comments 

Page 2 of3 

II. FINDINGS 1 AND 3: TO BE RECEIPTS FROM IMPERMISSIBLE FUNDS, THE 

TRANSACTIONS MUST BE IN MADE CONNECTION WITH A FEDERAL 

ELECTION 

In the proposed DFAR, the Audit Division concludes that HDP's state convention account 

("state convention account") is a Federal account because the expenses, receipts and balances in 

this account were reported as Federal activity and this activity was not disclosed in HDP's state 

reports.' Proposed DFAR at 9-10 and 15-17. This conclusion is significant in two ways. First the 

Audit Division uses this conclusion as a basis to examine the state convention account and find 

that HDP misstated some of its financial activity in this account (Finding 1). Second, the Audit 

Division uses it to find that the Committee received impermissible contributions (Finding 3). 

We caution against concluding that the state convention account was a Federal account 

solely on the basis of how HDP characterized the account on its disclosure reports. While the 

manner in which HDP reported these receipts may be informative, it is not dispositive on the issue 

of whether the state convention account was a Federal account. HDP, for example, may have been 

mistaken in how it reported its financial activity.^ We believe that the focus should be on whether 

the receipt of these funds was in connection with a Federal election.^ 52 U.S.C. § 30118; 

11 C.F.R. § 102.5; see 11 C.F.R. parts 110,114 and 115. We do not have enough facts to resolve 

this question at this time based on the current record.^ 

At the interim audit report stage, we understood that some of the convention fees were 

apparently received for delegate expenses, and we noted that these expenses may not be paid from 

' The HDP, in its response to the Interim Audit Report C'lAR"), asserts that the state convention account "was 

established for the sole purpose of administrating the HDP's biennial convention" and therefore should not have been 

included in findings I and 3 of the proposed DFAR. Correspondence irom Neil Reiffto Thomas Hintermister, at 1-3 

(Dec. 12,2016). The HDP disclosed the state convention account on its Federal reports as a Federal account, and, as 

we understand it from the Audit Division, funds in this account were separate from the other Federal HDP accounts. 

We also note that the HDP, in response to the lAR, cites 11 C.F.R.- § 10b.24(c)(3) in support of its position 

that the Commission permits state party committees to pay for state conventions exclusively with non-Federal funds. 

Here, we are looking primarily at receipts from sources that would be regarded as prohibited if received in connection 

with a Federal election. The section that HDP cites addresses Federal election activity, which applies to certain 

disbursements, not receipts. We are not concluding that the payment of convention fees for the state convention is 

Federal election activity. 52 U.S.C. § 30101(20); 11 C.F.R. § 100.24(b), (c)(3). 

^ In its response to the lAR, "[t]he HDP acknowledges that some portion of the activity of this account was 

inadvertently and incorrectly included in its federal reports." Correspondence from Neil Reiff to Thomas 

Hintermister, at I (Dec. 12,2016). 

^ The selection of delegates from Hawaii to the DNC convention, occurs at the state convention. 2012 

By-Laws of the Democratic Party of Hawaii at Article VI, Section 38; 2012 Constitution of the Democratic Party of 

Hawaii. 

* Even if we conclude that the receipts were in connection with a Federal election, there remains a legal 

question as to whether this would be sufficient to conclude that the state convention account is a Federal account. This 

could be viewed as an instance when a committee deposits Federal contributions into a non-Federal account. See 

II C.F.R.§ 102.5. 
LRA 1024 Hawaii Democratic Party 

DFAR Legal Comments 

Page 3 of3 

impermissible sources to the extent that these receipts would be in connection with a Federal 

election. 52 U.S.C. § 30118; 11 C.F.R. § 102.5; see 11 C.F.R. parts 110,114 and 115; see e.g.. 

Advisory Opinion 1980-64 (NBA) (Labor organization prohibited from paying member's delegate 

expenses); Advisory Opinion 1979-07 (New Jersey Democratic State Committee) ("since the end 

to be served by the delegate selection process is the nomination of a party's candidate for President, 

the State Committee's expenses incident to such activity are clearly part of the 1980 Federal 

election process and may not be paid from contributions to the State Committee by corporations, 

labor organizations or national banks unless made from a separate segregated frmd. See 2 U:S.C. 

441b [now 52 U.S.C. 30118]."). We advised the Audit Division, if the information was available, 

to analyze the transactions to determine whether they were in connection with a Federal election. 

At the current audit stage, the Audit Division still does not have enough information to 

make such a determination. We do not know the degree to which, or even whether, these receipts, 

which are in the form of fees to the convention account from corporate, labor union and 

unregistered, non-Federal committee sources, were for the purpose of influencing a Federal 

election. 11 C.F.R. § 102.5(a)(l)(i). Without more information, we cannot reach a conclusion as 

to whether the state convention account was required to be disclosed as a Federal account. We, 

therefore, recommend that the Audit Division revise the Draft Final Audit Report to seek more 

information about these receipts, as they might pertain to a Federal election.