FEDERAL ELECTION COMMISSiON 

WASHINGTON, D.C. 20463" 

January 29, 2014 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway 

Assistant General Coun: 

Compliance Advice 

Joshua Blume 

Attorney 

SUBJECT: Interim Audit Report on the Democratic Party of Wisconsin (LRA 952) 

1. INTRODUCTION 

The Office of General Counsel reviewed the Interim Audit Report ("TAR") on the 

Democratic Party of Wisconsin ("the Committee"). The lAR contains two findings: Misstatement 

of Financial Activity (Finding 1); and Recordkeeping for Employees (Finding 2). Our comments 

address Finding 2 (Recordkeeping for Employees). We concur with any findings not specifically 

discussed in this memorandum. If you have any questions, please contact Joshua Blume, the 

attorney assigned to this audit. 
Comments on the Interim Audit Report 

Democratic Party of Wisconsin (LRA 9S2) 

Page 2 

II. RECORDKEEPING FOR EMPLOYEES (Finding 2) 

The lAR finds that the Committee did not maintain monthly logs in accordance with 

11 C -F.R. § 106.7 (d)( 1) to document the percentage of time each employee spent on Federal 

election activity ("FEA").' For 2011 and 2012, the Committee was required to, but did not, 

maintain logs for payroll totaling $3,670,266. This amount includes $2,192,554, for which payroll 

was allocated with Federal and non-federal funds, and $1,477,712, for which payroll was 

exclusively non-federal. 

Following the exit conference, the Committee submitted a response indicating that while it 

had not identified any logs in its records, other information confirmed the basis upon which its 

employees were paid. The Committee stated that beginning in February 2011 and continuing into 

the summer of 2012, Wisconsin held several State recall elections, and that at least some of its 

employees directly involved in supporting State candidates in connection with these elections 

performed no work in connection with Federal elections. The Committee stated that it hired staff 

to work exclusively in connection with these non-federal recall elections. The Committee also 

submitted exhibits that included a calendar of key Federal and non-federal election dates in 

Wisconsin within the described period of time,^ a list of employees that performed only what the 

party characterized as a de minimis amount of work in connection with Federal elections, and 

certain records made available during audit fieldwork containing information about employees 

paid exclusively with non-federal funds.^ 

The lAR finds that the statement and exhibits were not sufficient evidence to document the 

time that an employee spends on FEA. The Audit staff advised this Office that the statement and 

exhibits were insufficient because the documents were not created and maintained prior to 

issuance of the audit notification letter. In response to a question from this Office, the Audit staff 

further advised that affidavits from the Committee would not suffice to resolve a recordkeeping 

finding for the same reason. The Audit staff stated that although affidavits might help to resolve an 

allocation issue, no such issue arose during the course of this audit. Finally, the Audit staff noted 

that some of the employees whom the Committee claimed worked only on non-federal activity 

were paid with Federal funds. This rationale, however, and the additional information, is not 

discussed in the lAR. We recommend that the auditors make clear in the JAR that while the 

' Although the audit report firames the requirement to keep a log in terms of employee time spent on FEA, we 

note that the regulation requires that a log be kept showing the percentage of time each employee spends "in 

connection with a Federal election." See 11 C.F.R. § I06.7(d)(l}. We would recommend that the lAR be revised to 

reflect the regulation's terminology. "FEA" refers only to the four specific types of activities described in 2 U.S.C. 

§ 431(20) and 11 C.F.R. § 100.24(b). but activity "in connection with a Federal election" is a broader term 

encompassing ail Federal activity, not only FEA. See Office of General Counsel Comments on Drqfi Final Audit 

Report on the Maine Republican Party (LRA 817), p. S. 

' This exhibit also listed the names of those employees who either were hired exclusively to work on 

non-federal elections, or who worked on both Federal and non-federal projects. 

^ This last exhibit provides the names of individuals who were paid from the Committee's non-federal bank 

accounts. It provides a breakdown of the individuals paid, pay period, salary amounts, taxes, fees, benefit amounts, 

and the non-federal bank account numbers. According to Audit staff, before receiving this exhibit, it only had 

information regarding whoie amounts paid from the non-federal accounts. 
Comments on the Interim Audit Report 

Democratic Party of Wisconsin (LRA 952) 

Pages 

evidence submitted by the party may be useful for allocation purposes, it is not sufficient to fulfill 

the recordkeeping requirement due to the timeframe in which it was prepared. See Final Audit 

Report of the Commission on the Georgia Federal Elections Committee ("FAR - GFEC") (Aug. 9, 

2011). (Commission found that the committee had not maintained adequate documentation 

detailing time spent on Federal activities for employees despite the committee's submission of 

declarations from its employees attesting to the amount of time spent on Federal activities in 

connection with a Federal election). 

The Committee's assertion that at least some of its employees worked exclusively on 

non-federal matters and were paid exclusively with non-federal funds, raises a legal issue as to 

whether the requirement in 11 C.F.R. § 106.7(d)(1) that a State or local party conunittee keep a 

monthly log "of the percentage of time each employee spends in connection with a Federal 

election" applies to employees who work exclusively on non-federal matters and are paid solely 

out of non-federal funds. We believe that it does. 

The scope of the regulatory requirement of section 106.7(d)(1) is broad. It requires 

committees to maintain logs of the percentage of time spent in connection with Federal elections of 

"each employee". 11 C.F.R. § 106.7(d)(1). "Each employee" would necessarily include all the 

committee's employees, including those who spend no time in connection with Federal elections, 

because zero percent is also a percentage of time spent in connection with Federal elections.'^ This 

reasoning parallels reasoning the Commission recently adopted when considering whether 

committees must maintain monthly logs for employees spending 100 percent of their time in 

connection with Federal elections. See OGC Memorandum on Request for Early Consideration of 

a Legal Question in LRA 917 (Vermont Democratic Party) ("OGC Vermont Memorandum "), at 2; 

OGC Memorandum on Request for Early Consideration of a Legal Question in LRA 921 

(Democratic Party of Illinois) ("OGC Illinois Memorandum), at 2. In these memoranda we 

concluded that read literally section 106.7(d)(1) requires committees to maintain monthly logs for 

employees paid with 100 percent Federal funds. OGC Vermont Memorandum, at 2; OGC Illinois 

Memorandum, at 2. We noted that "[a]lthough 100 % of the time spent on federal activity 

represents the whole or complete time spent on federal activity, this is still a percentage and 

* A committee could argue that it is not required to keep a log ofthe percentage of time an employee spends on 

Federal activity if the employee spends no time on Federal activity, relying on a Commission statement that the 

purpose of the log is "only [to] serve to distinguish covered employees from those over the 25% threshold," 

Explanation and Justification for Final Rules on State, District, and Local Party Committee Payment of Certain 

Salaries and Wages, 70 Fed. Reg. 75379, 75382 (Dec. 20,2005) ("2005 E&J") (discussing purpose of logs when 

rejecting use of logs as basis for directly proportional allocation of employee salaries between Federal and non-federal 

funds). A "covered employee" is one who spends more than zero but less than 25 percent of the time on Federal 

activity. Id, at 75379. However, the Commission discussed this purpose in the context of considering how to allocate 

employee salaries, evaluating, and ultimately rejecting as too burdensome on committees, a directly proportional 

allocation method. As the Commission said in the sentence following that which describes the purpose ofthe log, 

"[t]his division [between 'covered employees' and those over the 25% threshold] has legal consequences, while the 

particular percentage does not." Id, at 75382. There are legal consequences when an employee spends zero percent of 

his or her time on Federal election activities: salaries for employees who spend none of their time on Federal-related 

activities in a given month may be paid entirely with non-federal funds. 11 C.F.R. § 106.7(dXlX>i>)- Section 

I06.7(d)(l)(iii) was added by this rulemaking, and did not exist prior to this Explanation and Justification. 

See 2005 E&J, at 75382. Further, as noted, the language of section 106.7(d)(1) refers to "each employee" and not 

merely to covered employees. 
Comments on the Interim Audit Report 

Democratic Party of Wisconsin (LRA 9S2) 

Page 4 

therefore must be documented." OGC Vermont Memorandum, at 2; OGC Hlinois Memorandum, 

at2. 

In our memoranda on the Requests for Early Consideration of a Legal Question, we 

observed that while the regulation literally required monthly logs for employees paid with 100 

percent Federal funds, there was also a separate, prudential question of whether the Commission 

wished to pursue recordkeeping findings in such cases where the soft money concerns underlying 

the allocation regulations were absent. Id. The Commission ultimately decided, as a matter of 

discretion in the audit context, not to pursue a recordkeeping finding where the Committees failed 

to keep logs with respect to their employees who were paid solely out of Federal funds. See 

Commission Certifications in the Matter ofRequest for Consideration of a Legal Question, LRA 

917 (Vermont Democratic Party) and LRA 921 (Democratic Party of Illinois).' Here, in contrast, 

where payment of employees solely out of non-federal funds is concerned, the soft money 

concerns underlying the regulations are arguably more salient. Maintaining a log for all staff, 

including those who did not spend time on Federal activity, is necessary to ensure that auditors can 

verify that those employees did not spend any time on Federal activity. As a practical matter, we 

have no way of knowing whether any employees spent none of their time on Federal-related 

activities unless we can review documentation such as a log that indicates that information. 

Although we conclude for the above reasons that the recordkeeping requirement in 

11 C.F.R. § 106.7(d)(1) applies to ICQ percent non-federal employees, we note that the 

Commission considered, but did not resolve, this issue in the Georgia Federal Elections 

Committee audit. In that audit, the Commission split 3-3 on whether the monthly log requirement 

applied to employees whom the committee asserted spent no time on activity in connection with 

federal elections. The proponents of the failed motion asserted that "the Commission does not 

have jurisdiction to impose recordkeeping and documentation requirements on employee.activity 

that a State party committee claims is solely non-federal." ® See Commission Agenda Document 

No. 11-10-B (Motion on Audit Division Recommendation Memorandum on GFEC, considered in 

Open Session, Mar. 3,2011). Therefore, because the Commission has not resolved, and appears to 

be divided over, the issue, we recommend that Audit raise the issue in the cover memorandum to 

the Commission that will accompany this audit report. 

* Specifically, the Commission ultimately voted S-l to conclude that section 106.7(d)(1) requires committees 

to maintain monthly logs for employees paid with ICQ percent Federal funds, and also voted to exercise its 

prosecutorial discretion to not pursue a recordkeeping finding in such cases. Commission Cerli/icaiions in the Matter 

of Request for Consideration of a Legal Question, LRA 917 (Vermont Democratic Party) and LRA 921 (Democratic 

Party of Illinois). 

' More recently, during the Commission's open meeting of January 16,2014, the Commission held over to a 

future meeting its consideration of two Audit Division Recommendation Memoranda (ADRM), those on the Dallas 

County Republican Party (A 11 -14) and the Republican Party of Iowa (A i I -24), for additional factual civification 

relating to this issue. The Commission's discussion of these ADRMs, a recording of which can be accessed at 

httD://www. fec.gov/agenda/20 i 4/agenda20 i 40116.shtml. reveals continued disagreement among the Commissioners 

regarding whether the Commission has Jurisdiction to require a State committee to maintain a monthly log with 

respect to those of its employees who are paid solely out of non-federal iiinds where the committee has made an 

uncontroverted representation that those employees engaged exclusively in non-federal activity.