SANDLER, REIFF, YOUNG & LAMB, RC. 

September 28,2012 

Shawn Woodhead Worth 

Secretary 

Federai Election Commission 

999 E Street, NW 

Washington, DC 20463 

Dear Ms. Worth: 

The undersigned serves as counsel to the following Democratic State Party Committees: 

Mississippi Democratic Party PAC 

Massachusetts Democratic State Committee - Fed. Fund 

Vermont Democratic Party 

Democratic Party of South Carolina 

This letter serves as a request for consideration of a legal question raised during each of 

the Audits of the above referenced commiltees for the 2010 election cycle. This requesi is being 

made in accordance with the FEC's recent Policy Statement, Notice 2011-11. Policy Statement 

Ret»ardinu a Prottram for Requesting Consideration of Legal Questions bv the Commission. 76 

FL'd Reg. 45798 (August 1, 2011). Our office received notification of this proposed finding, via 

conference call, on September 10,2012. 

Specifically, during this call, our office was notified by (he Audit Division that it 

intended to include, as a finding in the Interim Audit Report for each Audit that the committee 

failed to comply with Commission recordkeeping requirements by failing to maintain employee 

time logs for those employees who were paid exclusively with federal funds. It is my 

understanding that all of the above referenced committees would be affected by this proposed 

finding. Our clients disagree with this proposed finding as a "novel" approach to this issue" and 

"inconsistent with prior Commission matters dealing with the same issue" 76 Fed. Reg. at 45799. 

During the fieldwork and the Exit Conference for each of these committees, the Audit 

Division raised the issue of time logs and suggested that, according to 11 C.F.R. § 106.7(d)(1), 

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Anachmenl. page 1 of 4 
logs must be kept for all employees percentage of time spent on federal activity regardless of 

whether they were paid all, in part, or with no federal funds. During the fieldwork, each 

committee conceded that the failure to keep logs for employees who were paid either in part or 

with no federal funds would support a recordkeeping fmding. However, each committee 

objected to any finding that employees who were paid exclusively with federal funds required 

any entry in a time log.' 

DISCUSSION 

Coinmission regulations at 11 C.F.R. § 106.7(d)(1) require that party committees "keep a 

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

eiection." Contrary to the proposed regulation that preceded the final regulation, the final 

regulation does not appear to specify that such a log be kept for all employees. 

The proposed regulation at proposed 11 C.F.R. § 300.33(b)(1) stated: "Committees must 

keep time records for aj] employees for purposes of determining the percentage of time spent on 

activities in connection with a Federal Election." Notice of Proposed Rulemaking, Prohibited 

and Excessive Conlributions: Non-Federal Funds or Soft Money, 97 Fed. Reg. 35654, 35684 

(May 20, 2002) (emphasis added). 

Although the Commission left provisions regarding the allocation of salary in the final 

section 300.33, it also created a new section of the regulations, 11 C.F.R. § 106.7, to address all 

issues relating to the allocation of expenses between federal and non-federal activities by state 

and local party committees. In doing so, it moved the recordkeeping requirement, in its entirety 

from proposed section 300.33 to section 106.7. The shift of this language from section 300.33 

which relates to Federal Election Activities, to section 106.7, which deals exclusively with the 

allocation of expenses is significant. In our view, this shift signifies that the Commission 

believed that the recordkeeping requirement related solely to issues relating to the use of nonfederal funds and did not intend to create a universal, burdensome recordkeeping requirement for 

all employees. 

More significantly, the Commission changed the language of the proposed regulation and 

specifically deleted Che word "all" from the proposed version of the regulation. This clearly 

shows the intent of the Commission to not require time records for all employees but only for 

those covered by 11 C.F.R. § 106.7, which would include only those employees that the party 

was claiming to pay either entirely non-federal funds or with a combination of federal and nonfederal funds. 

' Notwithstanding this concession, ii should be noted that prior to the 2010 election cycle, il is my understanding 

that the committees were permitted to demonstrate during the audit process that employees did not exceed the 2S% 

threshold by providing affidaviis where inadequate records were maintained. Provision of these affidavits would 

negate a potential flnding that the committee potentially over-funded its federal account from its non-federal 

account. Once these affidavits were adequately provided, and the over-funding issue resolved, the Commission did 

not pursue any separate recordkeeping finding for employee time log recordkeeping. Although the Audit Division 

continues lo allow affidavits to be provided to resolve over-funding issues, to the extent that providing for a separate 

recordkeeping finding under any circumstances where the commitlee provides subsequent, acceptable 

documentation during the audit process appears to be inconsistent witii past practice in Commission audits. 

Attachment, page 2 of 4 
To be sure, there is no reason, as a matter of policy, to make a finding that state party 

committees have violated Commission recordkeeping requirements by requiring time sheets that 

serve no purpose. When queried by our office during the teleconference call as to the reason 

such documentation should be kept, the Audit Division replied that such time sheets would help 

track state party allocation transfers for payroll, by employee. However, the Commission 

already has access to sufficient information from committee payroll and other financial records, 

as well as the actual reports filed by the committee which show whether that the employee's 

payroll was intended to be paid for exclusively with federal funds. Adding a time log 

requirement for such employees serves absolutely no additional purpose other than to increase 

the recordkeeping requirements of state parties. In fact, it is my understanding that several state 

parties have chosen to not allocate their payroll costs because they find the time recordation 

requirements to be too burdensome. 

We also find it troubling that the Audit Division has chosen to include this finding in an 

Audit Report with respect to a regulation that the Commission has addressed in the Audit context 

on several occasions in prior cycles without once making a separate recordkeeping violation 

finding. The 2010 election cycle was the fourth election cycle under this regulation and the 

Audit Division's decision to include this as a finding now after three prior cycles under this 

regulation is clearly inconsistent with the Commission's approach in prior audits where no time 

logs were maintained. For example, in the 2006 Final Audit Report for the Georgia Federal 

Elections Committee, the Commission determined that the failure to maintain proper 

documentation would result in the requirement that employees must be disclosed on Line 30(b): 

The Audit staff's review of payroll expenses reported on Schedules H4 revealed that 

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

activities for employees whose salaries and related expenses totaled $231,366. Absent the 

supporting documentation. GFEC should have disclosed these salary and related 

expenses as non-allocable FEA on Schedules B. Line 30b. (Federal Election Activity 

Paid Entirely with Federal Funds). 

The Audit staff discussed this matter with GFEC's representatives during the audit and 

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

locate any of the items requested 

....The Commission considered the Audit Division's Recommendation Memorandum in 

which the Audit Division recommended that the Commission adopt a finding that GFEC 

had not maintained adequate documentation detailing the time spent on federal activities 

for employees whose earnings and related payroll expenses were allocated on Schedules 

H4. 

Final Audit Report of the Georgia Federal Elections Committee for the 2006 Election 

Cycle, p. 10 (emphasis added). 

Similarly, the Commission treated the same issue for the Tennessee Republican Party 

Federal Election Account as purely an over-funding and reporting issue in its 2006 Audit. The 

Audit Report did not discuss any specific recordkeeping violation. 

Attachment, page 3 of 4 
According to these prior audits, the recordkeeping requirement exists for the sole purpose 

of determining the appropriateness of allocation by the committee under section 106.7(d) and the 

Commission did not create a separate recordkeeping finding in these prior audits. The 

recordkeeping requirement merely supports the need to further document the use of non-federal 

funds for these activities. Therefore, the separate recordkeeping finding is clearly duplicative 

and unnecessary. 

Thus, this recordkeeping provision is not mandated by the Federal Election Campaign 

Act and it was the Commission who created this regulation for the apparent and sole purpose of 

assisting the Commission in monitoring compliance with the 25% provision found in 2 U.S.C. § 

43 l(20)(A)(iv). The payment by a state party of an employee's salary and benefits with 100% 

federal dollars, and the disclosure of such payments on Line 30(b) of the committee's report is a 

clear concession that it is subject to the mandate found in this statute and the need to comply 

with the FEC's recordkeeping requirement is completely moot with respect to that employee. 

I can assure you that state parties have, as a general matter, proceeded with this 

assumption, and I would expect that, due to the burden of the recordkeeping requirement, that 

few, if any, maintain time logs for 100% federal employees. If the Commission wishes to create 

a new standard for this recordkeeping requirement, it should do so by providing the regulated 

community with advanced notice and not penalize state parties by creating a new and novel 

finding of a violation of Commission regulations during the Audit process. 

Ba.sed upon the above, it is clear that the Audit Division's recommendation to include a 

separate finding of a violation of Commission regulations if a state party committee does not 

maintain time logs for employees who are paid exclusively with federal funds is inconsistent 

with Commission regulations. Therefore, the Commission should direct the Audit Division to 

omit such a finding in the Interim Audit Report. 

If you have any additional questions regarding this matter, I can be reached at (202) 479-

Illl. 

Neil Reiff 

Attachment, page 4 of 4