FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

January 29,2015 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Staff Director 

From: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Douglas A. Kodish^ltt^ 

Audit Manager 

By: Jim Miller ^ 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on the South Dakota 

Democratic Party (SDDP) (A 11-20) 

Pursuant to Commission Directive No. 70 (PEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendations below and discusses, the findings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendations. 

Finding 1. Misstatement of Financial Activity 

The Audit staff determined that SDDP understated its reported disbursements in 

2009 by S1S,1S5 and understated receipts in 2010 by $26,721. Subsequent to the 

audit notification letter, SDDP amended its reports, which corrected the 

misstatement for 2009. In response to the Interim Audit Report, SDDP amended 

its 2010 reports to materially correct its remaining misstatements. SDDP had no 

additional comments in response to the DFAR. 

The Audit staff recommends the Commission find SDDP misstated its financial 

activity for calendar years 2009 and 2010. 
Finding 2. Recordkeeping for Empioyees 

For the period covered by the audit, SDDP did not maintain any monthly payroll 

logs, as required, to document the percentage of time each employee spent on 

federal election activity. For 2009 and 2010, the Audit staff identified payments to 

SDDP employees totaling $60,143, for which monthly payroll logs were not 

maintained. 

The Audit staff recommends the Commission find that SDDP failed to maintain 

monthly time logs to document the time employees spent on federal election 

activity totaling $60,143. This amount includes payroll paid as follows to SDDP 

employees. 

A. Employees originally reported on Schedule H4 as allocated between 

federal and non-federal fimds in a given month (totaling $42,557). 

As stated in the Interim Audit Report, SDDP filed amended reports 

disclosing these payroll amounts as federal election activity. The 

corrective action by SDDP in response to the audit obviates the need for 

monthly timesheets for these employees based upon the Commission 

decision to not pursue a recordkeeping violation.' 

B. Employees reported on Schedule B (employees paid ficm federal funds) 

and also paid with 100% non-federal funds during the same month 

(totaling $2,399), and 

C. Employees paid exclusively with non-federal funds in a given month 

(totaling $15,187). 

Finding 3. Reporting of Coordinated Party Expenditures 

During audit fieldwork, the Audit staff found that SDDP made an apparent 

excessive coordinated expenditure of $16,277 to a House candidate, resulting fix>m 

coordinated expenditures made in excess of the coordinated party spending 

limitation. 

In response to the Interim Audit Report recommendation, SDDP amended its 

reports reclassifying an expenditure for direct mail, totaling $19,529, as volunteer 

exempt activity. To support qualification of these mailers for the volunteer 

materials exemption, SDDP provided pictures of volunteers working on the direct 

mailers and a signed declaration from the Executive Director, who had firsthand 

knowledge of these mailings, stating that volunteers completed certain work on 

these mailings. 

The DFAR did not attribute expenditures totaling $ 19,529 to the coordinated 

expenditure limit and consider^ the matter resolved. 

' On November 28,2012, the Commission concluded, by a vote of S-1, that 11 C.F.R 106.7(d)(1) does 

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

prosecutorial discretion the Commission decided not to pursue recordkeeping violation fbr employees paid 

with 100% federal funds and reported as such. 
In view of the uncertainty regarding the amount of volunteer involvement needed 

to qualify for the volunteer materials exemption, as well as, the amount of 

documentation required to support such an exemption, the Audit staff did not 

attribute expenditures totaling $19,529 to the coordinated expenditure limit 

The Audit staff recommends that due to the lack of clarity regarding the level of 

volunteer involvement needed to qualify for the volunteer materials exemption, the 

Commission not attribute expenditures totaling $19,529 (the amount associated 

with the candidate committee, Stephanie Herseth Sandlin For South Dakota) 

towards the coordinated expenditure limitation and that SDDP did not exceed the 

2010 coordinated expenditure limit. 

Finding 4, Contributions friim Unregistered Political Organizations 

During audit fieldwork, the Audit staff identified contributions totaling $14,831 

from unregistered political organizations. The Interim Audit Report reconunended 

that SDDP provide evidence of permissibility for these contributions or refund or 

disgorge remaining amounts to the U.S. Treasury, as necessary. 

In response to the Interim Audit Report recommendation, SDDP provided 

documentation demonstrating that amounts totaling $8,140 either came from 

permissible sources or were not contributions. For other contributions, SDDP 

untimely resolved the impermissible amounts by issuing re^ds to contributors 

totaling $4,891 and a disgorgement check for $1,800 to the U.S. Treasury. SDDP 

had no additional comments in response to the DFAR. 

The Audit staff recorrunends the Commission find SDDP received impermissible 

contributions totaling $6,691 ($ 14,831-$8,140) from unregistered political 

organizations. 

Finding 5. Disclosure of Occupation/Name of Employer 

The Audit staff reviewed individual contributions, for which itemization is 

required, and found that 78 contributions totaling $30,702 lacked adequate 

disclosure of occupation and/or name of employer (OCC/NOE) information. 

Subsequent to the audit notification letter, SDDP obtained all of the missing 

contributor information and filed amended reports for calendar years 2009 and 

2010, which corrected all of the disclosure for occupation and name of employer. 

In response to both the Interim Audit Report and the Draft Final Audit Report, 

SDDP provided no additional comments. 

The Audit staff recommends the Commission find SDDP failed to disclose 

occupation and name of employer for contributions from individuals totaling 

$30,702 and did not timely demonstrate "best efforts" to obtain, maintain, and 

submit disclosure information with respect to these contributions. 

SDDP did not request an audit hearing. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 
In case of an objection, Ditective No. 70 states that the Audit Division Reconunendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Jim Miller or Doug Kodish at 694-1200. 

Attachment; 

- Draft Final Audit Report of the Audit Division on South Dakota Democratic Party 

cc; Office of General Counsel 
WiA^S. • 

Draft Final Audit Report of the 

Audit Division on the South 

Dakota Democratic Party 

(January 1, 2009 - December 31, 2010) 

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 compl ^ 

with the Act.^ The audi 

determim 

commij^Kompl 

the lia^tions. 

prombi^^l^nd 

disclosure^yrements 

of the Act. 

Future Acti<n 

The Commission ms 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Committee 

The South Dakota Democratic 1 

headquartered in Sioux Fall^ 

information, see the cha 

Financial 

• Receipts 

o Com 

o Contributii 

Party and 

ammittees 

o ^l^^^rs from Afff 

__ jittees 

o Ai 

Total 

DIsbursdffients 

o Operatrag Expenditures 

o Coordii^nf Expenditures Made 

Committees 

[ Election Activity 

All Other Disbursements 

Disbursements 

state party committee 

:h Dakota. For more 

ittee Organization, p. 2. 

$ 180,424 

133,843 

593,756 

13,042 

$921,065 

$ 574,603 

144,700 

184,970 

88,966 

$993,239 

tdings and Recommendations (p. l) 

• Misstatement of Financial Activity (Finding 1) 

• Recordkeeping for Employees (Finding 2) 

• Reporting of Coordinated Party Expenditures (Finding 3) 

• Contributions from Unregistered Political Organizations 

(Finding 4) 

• Disclosure of Occupation/Name of Employer (Finding 5) 

i. 

' On September 1,2014, the Federal Election Campaign Act of 1971, as amended ("the Act"), was 

transferred from Title 2 of the United States Code to the new Title 52 of the United States Code. 

' 52 U.S.C. § 30111(b) (formerly 2 U.S.C. §438(b)). 
Draft Final Audit Report of the 

Audit Division on the 

South Dakota Democratic Party 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Commission Guidance 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Reoom: 

Finding 1. Misstatement of Financial Activity 

Finding 2. Recordkeeping for 

Findings. Reporting of Coordinaf^l^ Expendii 

Finding 4. Contributions from Unre^^ ISkitical 

Finding S. Disclosure of Occupation^me 
W-|.VV> 

Parti 

Background 

Authority for Audit 

This report is based on an audit of the South Dakota Democratic Party (SDDP), 

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) (formerly 2 

U.S.C. §438(b)), which permits the Commission to conduct auditaggjid field 

investigations of any political committee that is required to under 52 U.S.C. 

§ 30104 (formerly 2 U.S.C. §434). Prior to conducting any^^^nder this subsection, 

the Commission must perform an internal review of repo^nlw^,selected committees 

to determine whether the reports filed by a particular^i^ittee rwmhe threshold 

requirements for substantial compliance with the iA^Ei^SijJlS.C. § 3^^^b) (formerly 2 

U.S.C. §438(b)). 

sources; 

ion and 

Scope of Audit 

Following Commission-approved procedures, the Ai 

factors and as a result, this audit 

1. the receipt of contributions from pi 

2. the disclosure of individual contribi 

3. the disclosure of disbursements, del 

4. the disclosure of expg^^located 

5. the consistency be^i^Mn^arted ft] 

6. the disclosure o^^^epend^^fuid coordi 

7. the comoleteness^P^rds 

8. other committee operaa&mfflHeeisgamiUo thgreview. 

Msion 

:.i IT evaluated various risk 

of employer; 

federti^S non-federal accounts; 

id bank mcords; 

expenditures; 

RequeswltejEarly Comn^ion O^sideration of a Legal Question 

Pursuant tO^^Policy Sti^nent Establishing a Program for Requesting Consideration 

of Legal Quests, by the ^mmission," SDDP requested early consideration of a legal 

question raised M^tethe^dit. SDDP questioned whether the monthly time logs 

required under 11 ^p^l06.7(d)(l) applied to employees paid with 100 percent 

federal funds. (See Wnding 2.) 

The Commission concluded, by a vote of 5-1, that 11 C.F.R. §106.7(d)(l) 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. Accordingly, Finding 2, Recordkeeping for Employees, of this audit report does 

not include a recommendation to pursue a recordkeeping violation for employees paid 

with 100 percent federal funds and reported as such. 
••.•.•I,-, V> .. 

Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration April 24.1982 

• Audit Coverage January 1,2009^Jfepmber 31.2010 

Headquarters Sioux Falls. S^^^akbta 

Bank Information 

• Bank Depositories Two W 

• Bank Accounts Four and Tfi^^on-federai 

Treasurer 

• Treasurer When Audit Was Conducted ^Nibbermk 

• Treasurer During Period Covered by Audit BWgibe^^ W 

Management Information 

• Attended Commission Campaign Firfi^e 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

[Staff 

I of Fitmrcial Activity 

idited A%dunts) 

Cash-on-lu^ ® JaniSi^^L 200^%^ S 93.826 

o Contrib^^ from Indivii^ls ^ 180,424 

o Contributidi^^m Politic^^arty and Other 

Political Corn^^Ks M 133,843 

o Transfers from /^l;iic;l/0ther Party 

Committees 593,756 

o All Other Receipts 13,042 

Total Receipts S 921.065 

Disbursements 

o Operating Expenditures 574,603 

o Coordinated Expenditures Made by Party 

Committees 144,700 

o Federal Election Activity 184,970 

o All Other Disbursements 88,966 

Total Disbursements S 993.239 

Cash-on-band @ December 31,2010 S 21,652 
U'i.% 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of SDDP's reported flnan^SS^tivity with its bank 

records revealed misstatements for calendar years 2009 and^^T For 2009, SDDP 

understated disbursements by SIS.ISS. For 2010, SDDP^p^^sd receipts by $26,721. 

Subsequent to audit notification, SDDP amended its rep^, wm^Mrrected the 

misstatement for 2009. In response to the Interim Itoport rec^ranendation, SDDP 

amended its 2010 reports to materially correct itsj^aining misstaten^^ (For more 

detail, see p. S.) 

Finding 2. Recordkeeping for Em 

During audit fieldwork, the Audit sta^etermined thai 

monthly payroll logs, as required, to cl^ainent the pei 

spent on federal election activity. For 

to SDDP employees totaling $60,143, fo1 

maintained. This consisted of $42,SS7, 

federal funds; $15,187 

that was paid from ae^clusTS 

employee was alsd^apifrom a' 

audit, SDDP filed ame! 

(Federal ElectioHnActivi 

Interim ^ 

arts to Fi 

For more det£ 

es^ 

F did not maintain any 

pf time each employee 

p 10, the AMtetSff identified payments 

Jy pay^ logs were not 

n federal and nonlid from ^^clusiveljpimn-federal account; and $2,399 

^non-feder&ccount during periods in which the same 

i\ accoun%S^bsequent to being notified of the 

:2009 di^sing all allocated payroll on Line 30b 

nt federal funds. In response to the 

ition. Counsel said SDDP moved all payroll expenses 

ity. The Audit staff considers this matter 

Finding 

The Audit staf 

$16,277 to a Hoi 

the coordinated 

officials stated that 1 

ig of Coordinated Party Expenditures 

)DP made an apparent excessive in-kind contribution of 

ate, resulting from coordinated expenditures made in excess of 

iding limitation. During the audit exit conference, SDDP 

ley had erroneously reported $19,529 for two direct mail pieces as 

Coordinated Party Expenditures on Schedule F, Line 25, when the expenditure was 

actually for Federal Election/Exempt activity, Aat SDDP should have reported on 

Schedule B, Line 30b. SDDP argued that the disbursements should not have been 

counted towards its coordinated party expenditure limit because the disbursements 

qualify for the volunteer materials exemption but were not properly disclosed on its 

reports. However, SDDP provided only limited evidence that volunteer activity existed. 
In response to the Interim Audit Report recommendations, SDDP amended its reports to 

disclose $19,529 as a volunteer exempt expense and provided a signed declaration that 

this type of mailing was generally performed by volunteers. Given the uncertainty 

regarding the level of volunteer involvement needed to qualify for the volunteer materials 

exemption, as well as the amount of documentation required to support such an 

exemption, the expenditures are no longer being attributed to SDDP's coordinated 

expenditure limit. (For more detail, see p. 9.) 

litical 

litical organizations 

totaling $4,891 

Finding 4. Contributions from Unregiste 

Organizations 

SDDP received contributions totaling $14,831 from unreg^ 

that may not have used permissible funds. SDDP refui 

of the $14,831, though it did so in an untimely mam 

In response to the Interim Audit Report reconin^dationst^DDP provide^Mmpd letters 

from contributors confirming that $3,140 weremi^ermi^le sources. I^^ition, 

SDDP provided documentation supporting that $S^O%M^nora contributim but rather a 

reimbursement from a non-federal cc^mittee related^^Moor hanger. SDDP also issued 

a disgorgement check for $1,800 payl^^to the U.S. Tr^^bl^for the balance of the 

impermissible contributions. (For mora^^fetsee n. 12.) 

Finding 5. Disclosure of Oc^pi 

The Audit staff reviews 

found that 78 contri); 

and/or name of er 

of the audit, SDDP didi 

submit contrUaMtQEjnfo 

of the mis 

whichjMterially cor 

16 of Employer 

jual contrib'^hs, for wj^h itemization is required, and 

; $30,702 l|cked adequate disclosure of occupation 

^OE) informant Furthermore, prior to the notification 

Ldocume^best efforts" to obtain, maintain, and 

Rifled of the audit, SDDP obtained some 

|tion andliled amended reports for calendar year 2009, 

lofOCC/NOE. 

In the Int^^bAudit 

additional im^mation it c( 

response to thel^|t repot 

reports to include 

le Addit staff recommended that SDDP provide any 

.iders relevant to this matter. SDDP made no comment in 

However, although not required, SDDP amended its 2010 

ly undisclosed OCC/NOE information for $10,206 in 

contributions from ii^iduals. (For more detail, see p. 14.) 
Part IV 

Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of SDDP's reported financial activity with its bank 

records revealed misstatements for calendar years 2009 and 2010. For 2009, SDDP 

understated disbursements by SIS.ISS. For 2010, SDDP undersU^receipts by $26,721. 

Subsequent to audit notification, SDDP amended its reports, ^^g^^^rrected the 

misstatement for 2009. In response to the Interim Audit Real^Bcommendation. SDDP 

amended its 2010 reports to materially correct its remainuRgliiii^itpments. 

Legal Standard 

Contents of Reports. Each report must disclos 

• The amount of cash-on-hand at the beg^^p and ^d of the reporfl^^riod; 

• The total amount of receipts for the reoor^^eriog^ for the cale^ar year; 

• The total amount of disbursements for the re^^g period and for the calendar 

year; and 

• Certain transactions that reouii^B^ization on Sctii^le A*fltemized Receipts) or 

Schedule B (Itemized DisburserMMiBii^J.S.C. § 30pf(b)(l),(2),(3),(4) and 

(5) (formerly 2 U.S.C. § 434(b)(%2), i 

Facts and Anali 

A. Facts 

The Audit stafh|concile'S^^Fi^i^|^^^itfrbank records for calendar years 2009 

and 201 cm^gutlinem^^crepancies for the beginning cash 

balancM^ceiptsToii^semen^nd ending cash balances for each year. Succeeding 

paraca@is address the^^ns fo^tesi?iisstatements. 

2009 Co^^eeActiviH 

Reported Bank Records Discrepancy 

Beginning Casff^M@ 

@ January 1,200pr 

$94,626 $93,826 $ 800 

Overstated 

Receipts $194,044 $197,026 $ 2,982 

Understated 

Disbursements $261,047 $276,202 $15,155 

Understated 

Ending Cash Balance @ 

December 31. 2009 

$11,645' $14,650 $3,005 

Understated 

' SDDP did not cany the correct ending cash balance to the subsequent report's beginning cash balance 

from the July 2009 Monthly report through the Year End 2009 report. As a result of these discrepancies, 

the amounts in the "Reported" column do not total correctly. 
The understatement of disbursements resulted from the following: 

• Disbursements not reported $ 18,938 

• Disbursement reported but not supported by a check or debit (3,390) 

• Unexplained difference (3931 

Net Understatement of Disbursements $ IS.ISS 

Unreported disbursements of $18,938 consist primarily of payments for salaries and a 

loan payment. 

The $3,005 understatement of the ending cash balance on I 

from the misstatements described above, as well as discre^ 

balance and receipts. 

Subsequent to audit notification, SDDP amended 

which corrected the misstatements noted above 

1,2009 resulted 

jn the beginning cash 

I for calen^gear 2009, 

2010 Committee Activity 

Reported BaJS^Elecords Discrepancy 

Beginning Cash Balance 

^January 1,2010 

$2,995 

Understated 

Receipts $6^3ir $72@39 $26,721 

Understated 

Disbursements $707l|3 ^717,037 $9,724 

Understated 

Ending Cash B^lan^^ M $21,191^ 

December 31.2010 .,F' 

f $21,652 $461 

Understated 

The ur atemem 

sipts from 

j^d receipt 

U^^yigined diffe^ce 

Net 

jl^lted from the following: 

ss not reported 

be 

itatempt of Receipts 

$ 28,534 

(2,026) 

213 

UU2L 

The $461 understati^^ of the ending cash balance on December 31,2010, resulted 

from the misstatements described above, as well as discrepancies in the beginning cash 

balance on January 1,2010, and disbursements. 

\ 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff discussed the misstatements with SDDP 

representatives and provided copies of relevant schedules. SDDP filed amendments 

* The beginning cash balance was not carried forward correctly from the previous period. 

' This column does not total due to discrepancies throughout 2010 between reported amounts for ending 

cash and the subsequent period's beginning cash balance. 
• -Uri.^.'.-v ... w-i;.:. > 

correcting the misstatements for 2009 and said that it would file corrective amendments 

for 2010. 

The Interim Audit Report recommended that SDDP amend its reports to correct the 

misstatements noted above for calendar year 2010 and amend its most recently filed 

report to correct the cash-on-hand balance with an explanation that the change resulted 

from a prior period audit adjustment. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendations, SDDP reconciled its accounts 

and filed amended reports for 2010 that materially corrected its 

Finding 2. Recordkeeping for Emploj^s 

Summary 

During audit fieldwork, the Audit staff determin^ that S 

monthly payroll logs, as required, to documem^^rce 

spent on federal election activity. For 2009 and 26 

to SDDP employees totaling $60,143,jfor which mon 

maintained. This consisted of $42,SS%^Dorted as alloc 

federal funds; $IS,187 that was paid 

that was paid from an exclusively non-fl 

employee was also paid from a federal i 

audit, SDDP filed amend^li^Qrts for 20C 

(Federal Election Ac^ty) a^^d with 100 { 

Interim Audit RenoW^comme^tion. Couns 

on their reports to Fedd^^lect^jf^i^ctivitv. 

resolved. 

)P did not 1 

Lof time each ^)loyee 

Cuait staff identified payments 

ayroll logs were not 

I federal and non-

^usively nd^Mpral account; and $2,399 

;,during ^iods in which the same 

I being notified of the 

slosing ^illocated payroll on Line 30b 

ent federal funds. In response to the 

lid SDDP moved all payroll expenses 

l^udit staff considers this matter 

LegeyUfftandard 

Maiin^bice of Montfii 

of time e^fesmployee s| 

salaries, wa^^md fringe 

• Emplo^^grho spi 

month on 

mittees must keep a monthly log of the percentage 

in ct^nection with a federal election. Allocations of 

fits ace to be undertaken as follows: 

25 percent or less of their compensated time in a given 

fection activities must be paid either from the federal account 

or have their allocated as administrative costs; 

Employees ^^o spend more than 25 percent of their compensated time in a given 

month on federal election activities must be paid only from a federal account; and. 

Employees who spend none of their compensated time in a given month on 

federal election activities may be paid entirely with funds that comply with State 

law. 11 CFR§I06.7(d)(l). 

* During SDDP's reconciliation, additional information was provided to the Audit staff for which 

adjustments were made to the misstated amounts in this report. 
ve-i.vV^ 

Facts and Analsrsis 

A. Facts 

During fieidwork, the Audit staff reviewed disbursements for payroll. SDDP did not 

maintain any monthly logs or equivalent records to document the percentage of time each 

employee spent in connection with federal election activity. These logs are required to 

document the proper allocation of federal and non-federal funds used to pay employee 

salaries and wages. For 2009 and 2010, SDDP did not maintain logs for $60,143^ in 

payroll. This consisted of $42,SS7, reported as allocated between federal and non-federal 

funds; $15,187 that was paid from an exclusively non-federal account, and $2,399 that 

was paid from an exclusively non-federal account but also includedemolovees paid from 

a federal account during the same periods. 

Subsequent to audit notification, SDDP filed amended r^fe H^Mlendar year 2009 that 

moved all previously allocated salaries to Line 30b, F^^ Elect^^ctivitv. The 

remaining payroll amount was immaterial. DuringJ^ra\HO^> the A^^jtaff asked 

SDDP representatives why SDDP made changej^ its 2009 payroll di^iSyres. SDDP 

representatives said the following: 

These changes were made as the result of twoliS^. The first is that due 

to the fact that allocation transfei^ere never cotr^ted for these 

individuals' expense, these items^^e|mis-reported?^^ndlv. with the 

knowledge of their roles, it is und&isro^lfeat.their time^^^pent beyond 

25 percent on federal activity. 

The Audit staff ackn^ 

payroll obviates th^^d for i 

exclusively federdn^^tisnd i 

after notiftcation of the i 

at the chan^ made by^DP in the reporting of its 

ily timesh^s since the payroll was paid with 

jrted as suchJ^j^ever, since SDDP amended reports 

1 indjMed in this audit report. 

B. IntmfH'Audi 

At tl|g^t conference^ 

logS^to the amount i 

that SDDP^psition is thi 

100 percent The lii 

reports that had^Sy^d alL 

no further action 

|t Division Recommendation 

ited the matter of maintaining monthly payroll 

ime spent on federal election activity. SDDP Counsel stated 

10 payroll logs are required for activity reported and paid as 

'im Audit Report noted the verification of SDDP's amended 

sated payroll to Line 30b, Federal Election Activity, and that 

lired. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, Counsel reiterated previous 

comments regarding payroll and filed more amendments that reported 2010 payroll 

expenses on Line 30b. The Audit staff considers this matter resolved. 

^ Amounts are net of payroll taxes and benefits. 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 Consideration of a Legal Question, p. 1). For all future payroll, the Audit staff 

recommended that SDDP maintain payroll logs for all employees. 
Finding 3. Reporting of Coordinated Party Expenditures 

Summary 

The Audit staff found that SDDP made an apparent excessive in-kind contribution of 

$16,277 to a House candidate, resulting from coordinated expenditures made in excess of 

the coordinated party spending limitation. During the audit exit conference, SDDP 

officials stated that they had erroneously reported $19,529 for two direct mail pieces as 

Coordinated Party Expenditures on Schedule F, Line 25, when the expenditure was 

actually for Federal Election/Exempt activity, that SDDP should have reported on 

Schedule B, Line 30b. SDDP argued that the disbursements sho^lhigt have been 

counted towards its coordinated party expenditure limit becau^he disbursements 

qualify for the volunteer materials exemption but were notj^^Jv disclosed on its 

reports. However, SDDP provided only limited evidenc^at >^^teer activity existed. 

In response to the Interim Audit Report recommi 

disclose $19,529 as a volunteer exempt expei 

this type of mailing was generally perfonm 

regarding the level of volunteer involvement needi 

exemption, as well as the amount of ^cumentation 

exemption, the expenditures are no lo^gj^eing attri 

expenditure limit. 

Legal Standard 

A. Coordinated Pa 

committees may eac^ 

general election 

11 CFR § 109.32(b). 

B. Assi 

assi 

comi 

authority 

expenditure" 

assigned 

assignment for at 

f, SDDP amefil^its reports to 

^d a signed dl^^^n that 

the unc^Pmty 

ir the volurfteer materials 

to support such an 

DDP's coordinated 

party c^^ittees and state party 

:penditures in connection with the 

who is affiliated with the party. 

arty E^enditure Limit. A political party may 

; coo'h8S^ted party expenditures to another political party 

[lent n^^e made in writing, state the amount of the 

eive^y the assignee before any coordinated party 

[ to the assignment. The political party committee that is 

srdinated party expenditures must maintain the written 

; years. 11 CFR §§104.14 and 109.33(a) and (c). 

C. Exempt ActivityTThe payment by a state committee of a political party of the costs 

of campaign materials (such as pins, bumper stickers, handbills, brochures, posters, 

party tabloids or newsletters, and yard signs) used by such committee in connection 

with volunteer activities on behalf of any nominee(s) of such party is not a 

contribution, provided that the following conditions are met: 

• Such payment is not for cost incurred in connection with any broadcasting, 

newspaper, magazine, bill board, direct mail, or similar type of general public 

communication or political advertising. The term direct mail means any 

mailing(s) by a commercial vendor or any mailing(s) made from commercial lists; 
10 

The portion of the cost of such materials allocable to Federal candidates must be 

paid from contributions subject to the limitations and prohibitions of the Act; 

Such payment is not made from contributions designated by the donor to be spent 

on behalf of a particular candidate for federal office; 

Such materials are distributed by volunteers and not by commercial or for-profit 

operations; 

If made by a political committee such payments shall be reported by the political 

committee as a disbursement in accordance with 11 CFR §104.3 but need not be 

allocated to specific candidates in committee reports; and 

The exemption is not applicable to campaign materials purchased by the national 

party committees. 11 CFR §100.87 (a), (b). (c), (d), (e) agj^Sg} and 11 CFR 

§100.147 (a), (b). (c). (d). (e) and (g). 

D. Coordinated Party Communication. A political 

coordinated with a candidate, a candidate's authori 

foregoing, when the communication satisfies the C^Owi 

(1) The communication is paid for by a poll 

(2) The communication satisfies at least one o 

Must expressly advocate a candidate's 

§ 100.22(a) and (b). 

Involve the disseminatid tl^ution or 

campaign materials. 

Refers to a federal candid^ is 

and is distcftiligd within cermyHime 

confKminication is 

ittee.^^ent of any of the 

conditions^ 

imittee or its1 

idards. 

jon of defeat 11 CFR 

ion of a candidate's 

(3) The communj; 

§ 109.21 (d 

and (h). 

o ^ust hav^ 

candidate's constituents 

fore an election, 

le of the conduct standards in 11 CFR 

visions of 11 CFR §109.21(e), (g), 

or distributed at the request of the 

II""" 

.with'l 

luced I 

lis ag 

immon vendor in the creation, production or distribution of 

:ion. 11 CFR §109.37. 

iai involvement" of the candidate, 

ibuted after "substantial discussion" with the 

Facts and Anal 

A. Facts 

The combined coordinated party expenditure limit for a 2010 candidate for the House of 

Representatives from South Dakota was $174,000, with an $87,000 limit for both SDDP 

and the National Party (Democratic National Committee (DNC)). SDDP reported 

coordinated expenditures of $164,229' on Schedule F (Itemized Coordinated Party 

Expenditures) for Stephanie Herseth Sandlin, a candidate for the House of 

' Of the SI64,229 reported on Schedule F, SDDP provided assignment letters disclosing that the DNC 

(through DCCC) designated it to make expenditures of S14S,809 on behalf of the candidate. 
> -w_.. 

11 

Representatives. The Democratic Congressional Campaign Committee (DCCC) reported 

coordinated expenditures for the candidate of $26,048. The total reported coordinated 

expenditures by both the SDDP and the DCCC exceeded the coordinated expenditure 

limit by $16,277. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff provided a schedule of the coordinated 

expenditures subject to the limit and discussed them with SDDP representatives. During 

the discussion, SDDP representatives said that the SDDP had erroneously included a 

direct mail piece costing $19,529 in its Coordinated Expenses of $164,229 and that it 

should have reported this expenditure as volunteer exempt activit 

The Audit staff requested further documentation to suppor 

mailers as exempt activity. In response, SDDP provide 

on the direct mailers. It is also noted that the vendor i 

the same as the vendor used for other direct mail 

activity. 

Both mail pieces are brochures containing four 

One of the mail pieces emphasizes the words, 

plans of the opposing political partv'^eoneressional 

message is that the candidate,".. .doe^^^dght for Soi 

goes on to discuss, primarily, Medicare^^^^P^idate's an( 

and plans are provided. The final words eg the it^^^gsyer, 

candidate.' 

jrting of the direct 

Stui^lMyolunteers working 

: two ^^S^ail pieces was 

1 as exempt 

the back an37ront cover. 

Wrong" when discussing the 

The other mail piece's 

Seniors," and then 

iponent's viewpoints 

;e a no vote for the other 

The Commission i 

Final Audit Reports ot 

Tennessee Republican 

clarity exi, 

Commi 

su1 

was ne 

volunteer 

needed to sup 

I the^plicability ^he volunteer materials exemption in the 

sm^ratic Executi^glS^ommittee of Florida and the 

e Commission recognized that a lack of 

atiohlSFfKlfii'olunteer materials exemption. The 

to^^Etaulate a consensus policy regarding what constitutes 

menl^^4lie purpose of applying the exemption,'" but this 

lack ^c^larity exists concerning the application of the 

1, it follows that the type and amount of documentation 

ivolvement is also unclear. 

In view of the uncel^^l^ regarding the amount of volunteer involvement needed to 

qualify for the volui^r materials exemption and to document that involvement, the 

Interim Audit Report recommended that SDDP provide a more detailed statement" 

and further documentation regarding the volunteers' involvement for the two mailers. In 

addition, that SDDP should amend its reports in accordance with its earlier statements at 

the audit exit conference. Absent such further information, the disbursement might have 

* Each mailer includes a statement, "Paid for by the South Dakota Democratic Party." 

Proposed Interim Enforcement Policy, Agenda document No. 10-16. 

" SDDP might want to consider providing a swom statement which might be considered stronger evidence 

of volunteer involvement. 
v.'i.v". > • 

12 

been considered a coordinated expenditure, resulting in SDDP exceeding the coordinated 

expenditure limit by $16,277. 

C. Committee Response to the Interim Audit Report 

In response to the Interim Audit Report recommendations, SDDP amended its filing to 

show $19,529 as a volunteer exempt expense and provided a signed declaration that this 

type of mailing was generally performed by volunteers. 

Given the lack of clarity regarding the amount of volunteer involvement needed to 

qualify for the volunteer materials exemption, as well as the amq^tof documentation 

required to support such an exemption, the expenditures for A^^t^'SDDP claims as 

qualifying for a volunteer exempt activity are no longer bej^^jributed to SDDP's 

coordinated expenditure limit and this matter is conside 

Finding 4. Contributions from 

Organizations 

Summary 

SDDP received contributions totaling^ 

that may not have used permissible funi 

of the $14,831, though it did so in an unt 

II from unregi 

1 refunded 

I political organizations 

iitions totaling $4,891 

In response to the 1 nteriiig^li^Report i 

from contributors CQimrming^^^$3.140 wef 

SDDP provided dd^^|Dtation^pporting 1 

reimbursement from al^^d^^gsmmittee i 

a disgorgemc^s^^j^k for 3^^ 

impermisstHecomCTiations. 

lendatio^SDDP provided signed letters 

from permissible sources. In addition, 

100 was not a contribution but rather a 

[ted to a door hanger. SDDP also issued 

U.S. Treasury for the balance of the 

LegSr^idard 

A. Par^^mmittee A party committee may not receive more than a total of 

$10,000 peryB^rom any^e individual. This limit is shared by state, district, & local 

party committe^2 U.S#§ 30116a(a)(l)(C),(2)(C) and (0 (formerly 2 U.S.C. 

§441a(a)(l)(C), (2^^!r(f)); 11 CFR §§110.1(a) and (d) and 110.9(a). 

B. Handling Contributions that Appear Impermissible or Excessive. If a committee 

receives a contribution that appears to be impermissible or excessive, the committee must 

either: 

.1. Retum the questionable check to the donor; or 

2. Deposit the check into its federal account and: 

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

• Keep a written record explaining why the contribution may be illegal; 
13 

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

before its legality is established. 11 CFR § 103.3(b)(3). (4) and (S). 

C. Receipt of Contributions. Organizations that are political committees under the Act, 

other than national party committees shall establish a separate Federal account in a 

depository in accordance with 11 CFR part 103. Such account shall be treated as a 

separate Federal political committee that must comply with the requirements of the Act 

including the registration and reporting requirements of 11 CFR parts 102 and 104. Only 

funds subject to the prohibitions and limitations of the Act shall jg^gposited in such 

separate Federal account. 11 CFR §102.S(a). 

Facts and Analysis 

A. Facts 

During the 2010 audit cycle, SDDP deposited 1 

unregistered political organizations into its 

the audit notification letter, SDDP issued untimel; 

taken no action with respect to the remaining $9,940^ 

contributions at issue impermissible t^unresolved. 

mtributions, totaling^^831. from 

lunty^ollowing th^^Slmce of 

ing $4,89 l.l^DDP has 

e Audit staff considered the 

The Audit staff reviewed all documentat^n" 

contributions received from unregistered%oliti( 

notations in SDDP reco 

funds." However, thi 

of those contributi 

found no attempt 3h 

political organizations' 

: made stat 

'found no I 

)DP to ascer 

B. In^ln Audit 

Durin^idit fieldworl^ 

respoi 

for door 

that an effort 

substantiate that* 

I by SDf^'&rtaining to 

atior&. In several instances, 

into the federal committee 

ipt on tUb part of SDDP to make refunds 

^the audit. In addition, the Audit staff 

e permissibility of other unregistered 

& Division Recommendation 

it sta^^iented this matter to SDDP representatives. SDDP 

itribu^s for $5,000 should have been reported as an offset 

itribution. In addition, the SDDP representatives also said 

to contact the unregistered political organizations to 

from permissible sources. 

The Audit staff requ^ed additional information concerning the door hangers and the 

results of SDDP's e^orts to contact unregistered political committees to substantiate that 

the funds were from permissible sources, but received no further information. Absent 

such additional information, the Audit staff concluded that these items were 

impermissible contributions that needed to be refunded to the contributors or disgorged to 

the U.S. Treasury. 

SDDP issued refund checks totaling S6,691 but only S4,891 has cleared SDDP's bank account. 
14 

The Interim Audit Report recommended that SDDP provide documentation that 

demonstrates $9,940 in questioned contributions were made with permissible funds or 

that they be refunded to the contributor or disgorged to the U.S Treasury. 

C. Committee Response to the Interim Audit Report 

In response to the Interim Audit Report recommendations, SDDP provided eight signed 

letters from contributors confirming that $3,140 were from permissible sources. In 

addition, SDDP provided documentation supporting that $S,000 was not a contribution 

but rather a reimbursement from a non-federal committee related to a door hanger. 

SDDP also issued a disgorgement check for $1,800 payable to the U.S. Treasury for the 

balance of the impermissible contributions. 

Finding 5. Disclosure of Occttpation 

Summary 

The Audit staff reviewed individual contributioi^ for whr 

found that 78 contributions totaling $30,702 facl^^eqi 

and/or name of employer (OCC/NOE) information, 

of the audit, SDDP did not sufficiently document "besi 

submit contributor information. Aftel^jjag notified of 

of the missing contributor information^p^jid^mended 

which materially corrected the disclosu^f 

In the Interim Audit Rej 

additional informatii 

response to the ai 

reports to include prev 

contributionsJ&^Jndivi 

indard 

ition requi 

otherH^%tan auth 

if it exc^^^200 per ci 

contributic^^i^m the 

U.S.C § 4341 

itemization ^^qqired, and 

iisclosure of pupation 

!, prior to tife notification 

irts" to obtain, maintain, and 

dit, SDDP obtained some 

calendar year 2009, 

mmendp^at SDDP provide any 

is matter. SDDP made no comment in 

required, SDDP amended its 2010 

IE information for $10,206 in 

^tions from Individuals. A political committee 

jmrmttee must itemize any contribution from an individual 

bndar year, either by itself or when combined with other 

fie contributions. S2 U.S.C. § 30104(b)(3)(A) (formerly 2 

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

contribution from an individual, the committee must provide the following 

information: 

• The contributor's full name and address (including zip code); 

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

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

• The amount of 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 52 U.S.C. § 30104(b)(3)(A) (formerly 

2 U.S.C § 434(b)(3)(A)). 
M* i.V'-- f i 

. 15 

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 the Act, the committee's reports and records will 

be considered in compliance with the Act. 52 U.S.C. § 30102(h)(2)(i) (formerly 2 

U.S.C§432(h)(2)(i)). 

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

have used "best efforts" with respect to contributions, if the committee satisfied all of 

the following criteria: 

• All written solicitations for contributions included: 

o A clear request for the contributors full name, 

occupation, and name of employer; and 

o The statement that such reporting is requ 

• Within 30 days ai^er the receipt of the 

one effort to obtain the missing infoi 

documented oral request. 

• The treasurer reported any contril 

provide by the contributor, was obtai 

contained in the committees' records or 

filed during the same two^^.cycle. 11 

Law. 

lUrer made at least 

request or a 

Facts and Ansdysis 

A. Facts 

Using the most recei 

determined that 7[ 

percent of itemized cd! 

of employer (QCC/NOl 

"best 

Commission. 

initially 

Tcation or was 

reports that the committee 

.7(b). 

lie audit p^od filed i^ior to the audit, the Audit staff 

jbutioi^lrom individmls totaling $30,702 (approximately 24 

Jacked adeqi^cdisclosure of occupation and/or name 

be errors either disclosed a notation, 

ft bH^^n the'SSFH^ule A, Itemized Receipts, filed with the 

After not|[^tion of the a^^ and iiifior to audit fieldwork, SDDP provided the Audit staff 

with copiel^j^ers that sent to contributors to obtain OCC/NOE information. 

These letters ^^^ated aj^ SDDP was notified of the audit. Also, after notification of 

the audit, SDDPl^^aiggjroed reports for 2009 that materially corrected the previously 

undisclosed OCC/N^^formation. Since SDDP took corrective action after 

notification of the aumt, this matter is included in this audit report. 

14 

•• 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the disclosure of OCC/NOE information with SDDP 

representatives at the exit conference and provided a schedule of the remaining errors. 

The Interim Audit Report recommended that SDDP provide any additional information it 

considered relevant to this matter. 
ijfi:.'. > m .. 

16 

C. Committee Response to the Interim Audit Report 

SDDP made no comment in response to the Interim Audit Report. However, although 

not required, SDDP amended its 2010 reports to include previously undisclosed 

OCC/NOE information for $10,206 in contributions from individuals.