FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

September 25, 2012 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Special Counsel to 

the General Counsel 

Lorenzo Holloway —~"— 

Assistant General Coimsel 

For Public Finance and Audit Advice 

Margaret J. Forman T^AZ^ -

Attomey ^ 

SUBJECT: Proposed Interim Audit Report on Vermont Democratic Party (LRA 917) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Interim Audit Report 

("lAR") for the Vermont Democratic Party ("tiie Committee"). The lAR contains one finding: 

Recordkeeping for Salaries and Wages.' Our comments focus on the issue of the Committee's 

recordkeeping requirements for employees who are paid and reported as solely 100% federal 

funds. If you have any questions, please contact Margaret J. Forman, the attomey assigned to tiiis 

audit. 

' We reconunend that the Conunission consider this document in Executive Session because the Commission 

may eventually decide to pursue an investigation of matters contained in the proposed lAR. 11 C.F.R. §§ 2.4(a) and 

(b)(6). 
Comments to the Interim Audit Report 

Vermont Democratic Party (LRA 917) 

Page 2 

II. RECORDKEEPING FOR SALARIES AND WAGES 

The auditors found that the Committee did not maintain a monthly log or any otiier 

supporting documentation for any of its paid employees. The proposed lAR recommends that, 

unless the Committee provides monthly logs, the Committee should implement a plan to maintain 

montiily payroll logs to track tiie percentage of time that each employee spends on activities in 

connection with a federal election. 

The monthly logs should have stated the percentage of time that each employee spent on 

activities in connection witii a federal election. 11 C.F.R. § 106.7(d)(1). The Conimittee paid a 

total of $293,071 for payroll from its federal account in 2009 and 2010. Included in this amount 

was $48,662 for 13 employees reported as federal election activity ("FEA") on Schedule B, line 

30b, and $40,937 for 16 employees reported as other federal operating expenditures on Schedule 

B,line21b.^ . 

The auditors reviewed the Committee's accounts and found that the Committee's 

payments to those employees that were reported as FEA or federal operating expenditures were 

paid with 100% federal fiinds. The proposed finding, therefore, raises the issue of whether state 

party committees must maintain a montiily log under 11 C.F.R. § 106.7(d)(1) for employees who 

are paid from and reported as solely 100% federal funds. We reiterate the informal advice on this 

issue that we provided in the context of another audit. 

A state party committee "must keep a monthly log of the percentage of time each employee 

spends in connection with a Federal election." 11 C.F.R. § 106.7(d)(1). To determine if a state 

party committee must allocate the salary, wages, and benefits of its employees, it must examine the 

percentage of time that the employees spent on federal election activity or activity in connection 

with federal elections. Salaries and benefits for employees who spend more than 25% of their 

compensated time on FEA or activities in connection with a federal election in a given month must 

be paid only from a federal account. 11 C.F.R. § 106.7(d)(l)(ii). Employees who spend less than 

25% of their time on FEA or activities in connection witii a federal election may be allocated as 

administrative costs or paid from the federal account. 11 C.F.R. § 106.7(d)(l)(i). Employees who 

spend none of their compensated time on FEA or activities in connection with a federal election 

may be paid entirely with funds that comply with State law. 11 CF.R. §§ 106.7(c)(1) 

and 106.7(d)(l)(iii). 

We conclude that, read literally, the regulations support the conclusion that state party 

committees must maintain a monthly log under 11 C.F.R. § 106.7(d)(1) for eniployees who are 

paid from and reported as solely 100% federal funds. Based on the disclosure reports filed by tiie 

Committee, it appears that of all of the employees that were paid with 100% federal funds, at least 

' The reports also disclosed the federal account having paid $203,472 for 14 employees on Schedule H-4 for 

Line 21a. as allocated federal/non-federal activity. However, according to the auditors, despite this reporting, all of 

these expenses appear in fact to have been paid from entirely Federal funds. None of the funds transferred from the 

committee's non-federal account to its federal account appear to have been to cover payroll; all such funds appear to 

have been used to pay for the non-federal share of other administrative expenses. 
Comments to the Interim Audit Report 

Vermont Democratic Party (LRA 917) 

Page 3 

13 of them may have spent 100% of their time on activities in connection with a federal election. 

Aldiouglh 100% of the time spent on federal activity represents the whole or complete time spent 

on federal activity, this is still a percentage, and therefore must be documented. 

Whether tiie Audit Division should pursue findings of this nature, however, raises practical 

questions. Section 106.7(d) supports the statute's requirement that state and local party 

committees treat as "federal election activity," payable witii 100% federal funds, the salaries and 

benefits of any employee who spends more than 25% of his or her compensated time during the 

month on activities in connection with a federal election. 2 U.S.C. §§ 431(20)(A)(iv), 441i(b)(l). 

Since the Committee paid the employees at issue with 100% federal fiinds, there is no concem that 

an inadequate share of federal funds was used to pay tiiese employees. The only difference that 

could possibly be made by keeping tiie log for these employees for the time paid witii 100% 

federal funds would be to identify those employees who spent less than 25% of their compensated 

time during a month on activities in coimection with a federal election, but whose salaries and 

benefits the Committee voluntarily chose to pay with 100% federal funds. Because the salaries 

and benefits of those employees are not "federal election activity," they would not have been 

reported as such on line 30(b) of the Detailed Summary Page, but could instead have been reported 

as federal operating expenses on line 21(b). 11 C.F.R. § 106.7(d)(1); see 

II C.F.R. §§ 104.14(b)(1) and 104.17(a)(4). Here, it appears that the Committee recognized this 

distinction because the Committee reported payroll payments of $40,937 for 16 employees as 

other federal operating expenditures on Schedule B, line 21b. If the Audit Division believes that 

logs (or the equivalent substitute) are needed to verify this reported information, then you should 

consider whether a recordkeeping finding or a limitation on the scope of the audit is appropriate. 

We provide these comments, however, recognizing the Commission's 3-3 split on a similar 

issue in the Georgia Federal Elections Committee audit involving employees whom the committee 

asserted spent no time on activity in connection with federal elections. In that audit, the 

Commission split on the issue of whether the Commission could require a committee to keep a log 

for such employees, notwithstanding that zero (as well as 100) is a percentage. For those 

employees, presumably, there would be considerably more reason to require the log, to ensure that 

their salaries were properly paid with 100% non-federal fimds. Nevertheless, in a motion that 

failed 3-3, three Commissioners 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 the Georgia Federal Elections 

Committee, considered in Open Session Mar. 3,2011). Here, unlike with the Georgia Federal 

Elections Committee, at least 13 of the Conunittee's 24 employees may have spent 100% of their 

time on activities in connection with a federal election and were paid with 100% federal funds, so 

the three Commissioners' concems regarding jurisdiction over "solely non-federal" activity may 

be reduced. Nevertheless, given that tiiere is some uncertainty on a related issue, we recommend 

that you raise this issue in the memorandum tiiat forwards the report to the Commission.