FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. '20463 

JUN 18 m 

MEMORANDUM 

TO: Patricia C. Orrock 

Chief Compliance GfTicOT 

Thomas Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel - Law 

Lorenzo Holloway ^ ^ 

Assistant General Couhsel 

Compliance Advice 

Danita C. Alberico JcAAttomey 

SUBJECT: Proposed Interim Audit Report on the Kentucky State Democratic Central 

Executive Committee (LRA 963) 

I. INTRODUCTION 

The Office of General Counsel has reviewed the proposed Interim Audit Report ("lAR") 

on the Kentucky State Democratic Central Executive Committee ("the Committee"). The TAR 

contains one finding: Recordkeeping for Employees.' We concur with any issues not 

specifically discussed in this memorandum. If you have any questions, please cont^t 

Danita C. Alberico, the attorney assigned to this audit. 

II. RECORDKEEPING FOR EMPLOYEES 

The Office of General Counsel's comments focus on the fmding that the Committee did 

not maintain monthly payroll logs for the percentage of time each employee spent on activity in 

' We recommend that the Commission 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 Imerim Audit Report 

Kentucky State Democratic Central Executive Committee 

(LRA 963) 

Page 2 

connection with a federal election in accordance with 11 C.F.R. § 106.7(d)(1). The auditors 

found that the amount of federal and non-federal funds paid for employees for whom logs were 

not maintained totaled $833,262. This amount consisted of $820,979 for which the payroll was 

allocated between federal and non-federal funds. The remainder, $12,283, was paid exclusively 

with non-federal funds. After the Audit Division notified the Committee of the audit, the 

Committee amended its reports to disclose that some of the employee salaries (totaling 

$503,149) that it had previously reported as allocated expenses were paid exclusively with 

federal funds. The Committee did not make any amendments regarding the balance (totaling 

$317,830) and continued to report the balance as allocated between federal and non-federal 

funds. The proposed lAR recommends that the Committee provide evidence that it maintained 

monthly time logs or implement a plan to maintain monthly payroll logs to track the percentage 

of time each employee spends in connection with a federal election. 

The Audit Division bases its lAR recommendation on the Commission regulation that 

requires a state party committee to "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 it must 

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

the percentage of time that its employees spend on federal election activities ("FEA") or activity 

in connection with federal elections. Salaries and benefits of employees who spend more than 

25% of their compensated time on FEA or activities in connection with a fisderal election in a 

given month must be paid only from a federal account. 2 U.S.C. § 431(20)(A)(iv); 11 C.F.R. 

§ 106.7(d)(l)(ii); see 2 U.S.C. § 441i(b)(2). Salaries and benefits of employees who spend 25% 

or less of their time on FEA or activities in connection with a federal election may be allocated 

as administrative costs or paid fix)m the federal account. 11 C.F.R. §§106.7(c)(l) and 

106.7(d)(l)(i). Salaries and benefits of employees who spend none of their compensated time on 

FEA or activities in connection with a federal election may be paid entirely with fimds that 

comply with state law. 11 C.F.R. § 106.7(d)(l)(iii). 

The Commission analyzed the requirements of this regulation in a request for legal 

consideration in which several state party committees asked the Commission to consider whether 

the monthly time log requirement applies to employees who are paid with 100% federal funds. 

The Commission concluded that the time log requirement applies even if the employees are paid 

exclusively with federal funds. However, the Commission determined as an exercise of 

prosecutorial discretion tiiat it would not pursue recordkeeping violations for the failure to keep 

time logs or provide affidavits to account for employee salaries paid with 100% federal funds 

and reported as such. Commission Certifications in the Matter of Request for Consideration of a 

Legal Question, LRA 917 (Vermont Democratic Party) and LRA 921 (Democratic Party of 

Illinois). 

The Commission's conclusion in the request for legal consideration, as applied to the 

facts here, raises an important issue: Since the Committee ultimately paid $503,149 with 100% 

federal funds, is it appropriate to include a finding in the audit report regarding this amount and 

require a plan to implement monthly payroll logs simply because the Committee initially 

reported tiiis activity as allocable between federal and non-federal fimds? 
Commenls to the Interim Audit Repoit 

Kentucky State Democratic Central Executive Committee 

(LRA 963) 

Pages 

We do not think it is appropriate to include the portion that reflects the amount that the 

Committee paid with 100% f^eral funds. The Committee's amendments suggest that its 

original reporting of $503,149 of the activity as "allocable" was erroneous. Given the exclusive 

use of the federal funds to pay some of its employees, the Coiiunittee's amendment to 

characterize the activity as paid solely with federal fimds appears reasonable. In lig^ of the 

Commission's decision to not pursue a finding for failure to maintain logs when a conunittee 

pays salaries with 100% federal funds, we do not think that a finding, pertaining to $503,149 of 

the Committee's payroll, requiring the Conunittee to provide additional evidence that it 

maintained logs or to implement a plan to maintain logs for stQaries paid exclusively v4th federal 

funds is warranted. See Office of General Counsel Conunents on Interim Audit Report on the 

South Dakota Democratic Party (LRA 885), p. 2.