SANDLER, REIFF, YOUNG & LAMB, P.C. 

June 1,2012 

Mr. Tfaomas Hintermeister 

Assistant Staff Director 

Audit Division 

Federal Biection Commission 

999 E Street, N.W. 

Wasfaington, D.C. 20463 

Dear Mr. Hintermeister: 

We are in receipt of the Draft Final Audit Report ("DFAR") regarding tihie Mmnesota 

Democratic-Famer-Labor Party C*MDFL") for die 2007-2008 cycle. This letter is to confirm my 

conversation last week witfa Gary Hacfae that the MDFL does not wish to request a hearing in 

coimection with consideration of the DFAR. However, the MDFL does disagree with some of the 

conclusions in tfae DFAR as outimed below: 

Finding #1 

The DEAR'S first finding involves the correction of the disclosure of financial activities for 

the committee's reports for calendar years 2007 and 2008. The finding stems from two types of 

issues. Furst, tfae Audit Report requests correction of certain items and casfa on faand amounts due 

to errors made in committee reports during tfae 2008 election cycle. As noted in tfae DFAR, tfae 

committee faas filed amendments to correct tfaese errors. 

Tfae otfaer portion of tfae Audit Reports finding involves tfae Audit Division's view tfaat tfae 

MDFL's use of an escrow account to transmit payroll from botfa its federal and non-federal 

accounts sfaould disclose botfa federal and non-federal activity on tfae committee's federal reports. 

The MDFL believes that its use of a payroll escrow account is, for all intents and purposes, 

indistinguisfaable from tfae escrow account used by tfae Georgia Federal Elections Committee 

("GDP") tfaat was at issue in its Audit for the 2006 election cycle. 

Notwithstanding any historic timing or motivations for establishing tfae account, tfae MDFL 

payroll account functioned essentially the same way as the GDP, except for tfae fact tfaat tfae MDFL 

manages its own payroll, as opposed to running the payroll tfarougfa a tfaird party vendor. Of 

course, tfae necessity for creating this escrow account is all the more necessary due to the fact that 

MDFL needed a single escrow account to handle IRS reporting and tax payments. Thus, we 

believe that the escrow account was neither a federal or non-federal account of tfae committee and 

required inclusion of non-federal payroll in the MDFL's reports does not serve any informational 

purposes to tfaose reading tfae disclosure reports of tfae MDFL. In addition, the mclusion of tfais 

activity would significantiy and incorrectly inflate tfae appropriate level of reportable financial 

activity of the MDFL. 

1025 VERMONT AVE., N.W., SUITE 300, WASHINGTON, DC 20005 • TEL: (202) 479-1111 • FAX: (202)479-1115 
The General Counsel does point out some distinctions between this matter and tfae GDP 

Audit. However, none of these distinctions should lead to a different conclusion. 

First, the MDFL established the payroll account for tfae same reasons tfaat tfae GDP 

establisfaed an account, tfae need to pay employees and tfae Intemal Revenue Service &om one 

account. It should be noted that, contrary to the DFAR's assertion, the GDP did not set up tfae 

payroll account at tfae request of tfae payroll vendor but in response to tfae vendor's refiisal to debit 

more tfaan one account for payroll. 

Second, tfae MDFL faas acknowledged tfaat it apparentiy and inadvertently overfunded nonfederal payroll by $102,663 during tfae 2008 election-cycle. However, tfais overfunding was 

ameliorated by the fact that tfae MDFL had underfunded the non-federal share of overall expenses 

during the 2008 cycle. Furthermore, the MDFL believes that these were funds m-transit, and were 

ultimately used only for non-federal payroll activity. In addition, tfae MDFL does not believe tfaat 

any of tfaese fimds were used to subsidize any federal payroll activity. 

Tfaird, tfae DFAR notes tfaat tfae MDFL amended its reports to disclose non-federal benefits 

tfaat were initially unreported by tfae MDFL. However, tfaese payments were made from tfae regular 

federal accounts of the MDFL and not from tfae payroll account. Tfaerefore, tfae two issues are 

distinct and non-comparable as the MDFL acknowledges that any payments from its regular federal 

accounts, even for non-federal benefits, sfaould faave been disclosed by tfae MDFL and were 

unrelated to tfae committee's need to admmister payments for payroll and payroll taxes. Finally, it 

should be noted that, similar to the GDP, tfae MDFL faas discontinued tfae transfer of botfa federal 

and non-federal payroll through the use of one payroll escrow account m response to the issues 

raised during the Audit. 

Based upon tfae above, tfae MDFL and GDP present tfae same basis for tfae Commission to 

conclude tfaat tfae forced disclosure of tfaese non-federal payroll expenses serve no legitimate or 

information purpose and tfae Commission sfaould not compel the MDFL to further amend its rqports 

to disclose this non-federal activity that merely passed through the payroll escrow account. 

In addition, the DFAR references the potential in-kind contribution in the amount of 

$10,000.00 in connection with a $10,000 credit on an invoice for the Four Points Sheraton in 

Denver, CO in September 2008, whicfa was noted in tfae IAR. Tfae IAR cfaaracterized tfais credit as 

an impermissible in-kind contribution from tfae faolding company tfaat owns tfae Four Points 

Sheraton. However, based upon information provided to the Audit Division obtained by the 

MDFL, tfae DFAR now states tfaat the MDFL received a '*permissible" in-kind contribution &om 

the Denver 2008 Convention Host Committee. While our research does show that tfae credit on the 

hotel bill may have derived from funds that were paid by tfae Denver 2008 Convention Host 

Cominittee to tfae faotel, it is not clear, and in our view, unlikely, tfaat tfais payment was, in fact, an 

in-kind contribution. 
Although we have had oral discussions with representatives ofthe Host Committee, we 

faave not been able to obtain any documentation from the Host Committee that eitfaer refutes or 

confirms tfae DFAR's conclusion. Ultimately, tfae MDFL does not believe that the payment to the 

hotel was intended as a contribution from the Host Committee, nor do we believe that the Host 

Committee would have remitted fimds to the MDFL with the uitent of makmg a contribution to the 

MDFL. 

Ultimately, based upon infonnation tfaat it could gatfaer, tfae MDFL believes tfaat the 

payment most likely represents a refund for a cancellation of an event honoring the Minnesota 

delegation in Denver tfaat was originally scheduled to be paid for directly by the Host Committee. 

After the cancellation of that event, it appears tfaat the Host Committee refimded monies to tfae 

faotel and tfae faotel credited tfae refimd to tfae MDFL's hotel portfolio. However, the MDFL cannot 

determme if this credit was intentional or accidental, nor can it determme tfae tme source of tfaese 

funds. In addition, it is possible tfaat tfaese funds were ultimately used for a fundraising event or 

meeting tfaat was not required to be paid for witfa federal funds. Since tfae Host Committee 

terminated its activities and ceased operation some time ago, tfae MDFL faas been unable to obtain 

any written documentation or confimiation on tfae circumstances or source of funds from the Host 

Committee. Based upon the above, the MDFL believes that it would be inappropriate to require the 

MDFL to report the receipt of an in-kind contribution from tfae 2008 Denver Host Committee. 

Finding #2 

• The DFAR concludes that the MDFL had a net underfunding of joint federal and nonfederal activity by its non-federal account during the 2008 cycle. This conclusion is in contrast to 

the lAR's conclusion that tfaere was a net over-fundmg of non-federal activity. Tfais ciiange is due 

to additional documentation and analysis provided by tfae MDFL in connection witfa its response to 

tfae IAR and tfae MDFL supports the Audit Division's conclusion in the DFAR that there was no 

overfunding ofthe federal account by the non-federal account. 

It sfaould be noted that tiie DFAR and MDFL's calculations differ by $136,145. However, 

since both tfae DFAR and MDFL concluded tfaat tfaere was an underfunding by tfae non-federal 

account, tfae MDFL does not seek any specific review of tfais finding. 

If you require any furtfaer information, or have any other questions, please call me at (202) 

479-1111. 

Sincjpr^^, 

Neil Reiff 

Counsel to tfae Minnesota Democratic-FarmerLabor Party