FEDERAL ELECTION COMMISSION 

WASHINGTON, O.C. 20463 

SEP 2 2 20U 

MEMORANDUM 

TO; 

FROM: 

Patricia C. Orrock 

Chief Compliance GfTicer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Lisa J. Stevenson • 

Deputy General Counsel - Law j 

Lorenzo Holloway 

Assistant General Counsel 

Compliance Advice 

Joshua Blume 

Attorney 

SUBJECT: Draft Final Audit Report on the Democratic Party of Wi^onsin (LRA #952) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Draft Final Audit Report ("DFAR") 

on the Democratic Party of Wisconsin ("the Committee"). The DFAR contains two findings: 

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

Our comments in this memorandum address both findings. If you have any questions, please 

contact Joshua Blume, the attorney assigned to this audit. 
Comments on the Draft Final Audit Report 

Democratic Paity of Wisconsin (LRA #952) 

Page 2 

II. MISSTATEMENT OF FINANCIAL ACTIVITY (Finding 1) 

The DEAR finds that the Committee misstated its receipts and disbursements for 2011 and 

2012 and lists the various discrepancies that resulted in the misstatements. 

The Committee responded to this finding and it focuses on two of the discrepancies: 

(1) incorrect reporting of vendor refunds, and (2) incorrect reporting of joint fundraiser receipts. 

With respect to the reporting of vendor refunds, the Committee reported them as negative 

entries on Schedule B rather Aan as offsets to operating expenditures on Schedule A, which is how 

the Commission instructs committees to report refunds. See Commission Instructions for Form 

3X.' The effect of this reporting error would be to understate both the Committee's total 

disbursements and the Committee's total receipts.^ 

With respect to the reporting of Joint fundraising receipts, the Committee effectively 

reported these twice: (1) in the proper manner as transfers from two joint fundraiser 

representatives on Schedule A, pertaining to itemized receipts, and (2) as contributions from the 

individuals who made the contributions collected by the joint fundraiser representatives, rather 

than as memo entries.^ This had the effect of overstating receipts in the year 2012. 

The DEAR notes that while the substance of the transactions was included in the 

Committee's disclosure reports, nevertheless, because they were improperly disclosed, the 

Committee's total receipts, total disbursements, and cash balances were misstated. The 

Committee, however, argues that while it may have erred in the manner in which it disclosed the 

relevant information, it nevertheless did make a timely disclosure of the information, and, 

therefore, that the monetary amounts associated with these two discrepancies should not be 

included in the cumulative dollar amount of the misstatements. 

The Committee's argument is based on the assumption that the mere disclosure of a 

financial transaction is sufficient. There is, however, another component to disclosing financial 

transactions: accuracy. The Commission's regulations require such disclosure reports to be 

accurate. 11 C.E.R. § 104.14(d). The Committee's method of disclosure resulted in inaccuracies 

in these three total values: total receipts, total disbursements, and cash balances. Committees must 

report the amount of cash on hand at the beginning of the reporting period, and the total amount of 

all receipts and all disbursements, as well as the total amounts of receipts and disbursements in 

' fee http://www.fec,gQv/p4f/fQrins/fecftin3xi.pdf 

^ For the year 2012, the DFAR finds that the Committee overstated rather than understated total receipts and 

disbursements. However, this appears to be primarily the result of the magnitude of the second reporting error 

discussed in the DFAR - namely, the double reporting of joint fundraising receipts (S4S7,814), as well as the 

magnitude of a third error not addressed by the Committee in its response to the Interim Audit Report, namely, 

payments to the same vendor reported twice (SS 14,424), which created an overall overstatement of receipts and 

disbursements. 

' The Committee notes that this reporting error arose from a clericai mistake, in which the wrong box was 

selected in the Committee's campaign finance software. 
Comments on the Draft Final Audit Report 

Democratic Party of Wisconsin (LRA #952) 

Page 3 

various enumerated categories. See 52 U.S.C. § 30104(b)(1), (2), (4);" 11 C.F.R. § 104.3(a)(1), 

(2), (b)(1). Thus, both overall totals and individual totals for specific types of receipts and 

disbursements are significant for disclosure purposes and are coirectly included in the total amount 

in the finding. However, the DFAR does not reference the Committee's argument. Because this is 

an important argument that raises a legal issue, we recommend that the Audit Division revise the 

DFAR to include this argument. 

III. RECORDKEEPING FOR EMPLOYEES (Finding 2) 

Our comments on this Hnding address the following points: (1) our recommendation that 

the Audit Division explain why it is accepting the Committee's proposed electronic recordkeeping 

system as an adequate employee log; (2) our recommendation that the Audit Division highlight 

certain salary payments for the Commission's consideration; and (3) our discussion of a legal 

argument that the Committee may be making. We address each of these three points in sequence 

below. 

First, we recommend that the Audit Division explain why it is accepting the Committee's 

proposed electronic recordkeeping system for the log requirement. The Committee has developed 

an exclusively electronic system for its employees to use in order to record the time they spend in 

connection with Federal elections in the future. The Committee provided a sample screen shot of 

its new time log, and argued that this system complies with the requirements of Commission 

regulations. The DFAR states that such action is consistent with Commission payroll log 

requirements, but it does not explain why it is consistent. We, therefore, recommend that the Audit 

Division revise the DFAR to explain why this system meets the employee log requirement. 

Second, we recommend that that the Audit Division highlight certain salary payments for 

the Commission's consideration. The DFAR finds that the Committee did not maintain monthly 

logs in accordance with 11 C.F.R. §106.7(d)(l) to document the percentage of time each employee 

spent in coimection with a Federal election. For 2011 and 2012, the Conunittee was required to, 

but did not, maintain logs for payroll totaling $3,627,262. This amount includes $2,192,554, for 

which payroll was allocated with Federal and non-federal funds, and $1,434,708 for which payroll 

was exclusively non-federal. The DFAR further resolves these totals into subtotals based on 

different categories of spending and different periods of time over which the money represented by 

the subtotals was spent. 

The Commission recently addressed recordkeeping findings in two audit reports, and its 

votes on these findings differed with respect to the need to keep a log for payments of non-federal 

funds to committee employees for non-federal work performed. In one of the audit reports, the 

Commission voted unanimously to approve the total amount of the recordkeeping finding where 

the non-federal payment portion represented payroll paid exclusively out of non-federal funds 

during periods in which the same employee was also paid from a Federal account. See Final Audit 

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

from Title 2 of the United States Code to new Title 52 of the United States Code. All Title 2 references in this 

document are to the former statutory provisions. 
Comments on the Draft Final Audit Report 

Democratic Party of Wisconsin (LRA tf9S2) 

Page 4 

Report on the Dallas County Republican Party (A11-14). In the other audit report, the 

Commission split on whether to approve that part of the recordkeeping finding dealing with 

exclusively non-federal payments during certain months. See Final Audit Report, on the 

Republican Party of Iowa (A 11-24). 

Thus, the resulting findings in the two audits appear to differ depending upon whether 

employees who were paid exclusively out of non-federal funds in a given period of time were also 

paid out of Federal funds within that same period of time. Because this Actual .question appears to 

be salient for the Commission, we would recommend that the Audit Division revise the DFAR to 

highlight the referenced amounts that would be in contention given the Commission's 

considerations in the previous audit reports. 

Finally, the Committee's response to the Interim Audit Report may raise a legal argument 

as to whether ^e Commission should apply the employee log requirement to a party committee 

heavily involved in non-federal elections.^ The Committee notes that the scope of the 

Commission's jurisdiction over a pair's payments to employees with non-federal funds for 

non-federal work has been a subject of recent debate. The Committee contends that it was heavily 

involved in non-federal elections during the audit cycle, and that its situation provides an example 

of the burden experienced by similarly situated state parties resulting from the imposition of a 

log-keeping requirement for these types of matters. 

To the extent that the Committee's statement might implicitly raise a legal argument that 

the burden it experiences is unjustifiable because of the absence of a valid basis for exercising 

jurisdiction over such payments, we conclude that the log requirement of 11 C.F.R. § 106.7(d)(1) 

applies to payroll paid exclusively out of non-federal itmds for non-federal work. The language of 

section 106.7(d)(1) is broad in that it applies by its terms to "each employee," and "each 

employee," necessarily includes all of a 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.' The Committee's representations that employees paid with 

non-federal funds spent no time on matters connected with Federal elections need to be 

documented in logs in order to ensure that, in ligjit of potential concerns about funding Federal 

election-related activity with Federally non-compliant funds. Commission auditors may verify the 

accuracy of those representations. See Office of the General Counsel Comments on Interim Audit 

Report on the Democratic Party of Wisconsin (LRA 9S2), at 3-4. 

' We note also that the Conunittee could be raising a policy argument for the Commission's consideration. 

' This reasoning parallels reasoning that the Commission had adopted when it answered in the afTirmative the 

related question of whether the monthly log keeping requirement applies to employees who spend one-hundred 

percent of their time on matters connected with Federal elections. See OGC Memorandum on Request fw Early 

Consideration of a Legal Question in LRA 917 (Vermont Democratic Party), at 2; and OGC Memorandum onRequest 

for Early Consideration of a Legal Question in LRA 921 (Democratic Party of Illinois), ei 2.