Interim Audit Report of the 

Audit Division on the 

Kentucky State Democratic 

Central Executive Committee 

(January 1, 2011 - December 31, 2012) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act' 

(the Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the Act.^ liie audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

About the Committee (p. 2) 

The Kentucky State Democratic Central Executive Committee is 

a state party cominittee headquartered in Frankfort, Kentucky. 

For more information, see chart on the Committee Organization, 

p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Political 

Committees 

o Transfers from Affiliates 

o Transfers from Non-federal 

Accounts 

o All Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Transfers to Affiliates 

o Transfers to Non-federal 

Accounts 

o Coordinated Expenditures 

o Contribution Refunds 

o Federal Election Activity 

o All Other Disbursements 

Total Disbursements 

$ 3,284,010 

233,585 

1,337,724 

160,055 

261,284 

S 5,276,658 

$2,517,459 

404,050 

1,507,682 

9,953 

6,150 

700,805 

87,212 

$ 5,233,311 

Finding and Recommendation (p. 3) 

• Recordkeeping for Employees 

' On September 1,2014, the Federal Election Campaign Act of 1971, as amended f'the Act"), was 

transfeired from Title 2 of the United States Code to new Title 52 of the United States Code. 

2 52 U.S.C. §30111(b) (Formerly 2 U.S.C. §438(b)). 
Interim Audit Report of the 

Audit Division on the 

Kentucky State Democratic 

Central Executive Committee 

(January 1, 2011 - December 31, 2012) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Commission Guidance 1 

Part n. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summary 

Finding and Recommendation 3 

Part IV. Finding and Recommendation 

Recordkeeping for Employees 4 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the Kentucky State Democratic Central Executive 

Committee (KDC), undertaken by the Audit Division of the Federal Election 

Commission (the Commission) in accordance with the Federal Election Campaign Act of 

1971, as amended (the Act). The Audit Division conducted the audit pursuant to 52 

U.S.C. §30111(b) formerly 2 U.S.C. §438(b)), which permits the Commission to 

conduct audits and field investigations of any political committee that is required to file a 

report under 52 U.S.C. §30104 (Formerly 2 U.S.C. §434). Prior to conducting any audit 

under this subsection, the Commission must perform an internal review of reports filed 

by selected committees to determine whether the reports filed by a particular committee 

meet the threshold requirements for substantial compliance with the Act. 52 U.S.C. 

§30111(b) (Formerly 2 U.S.C. §438(b)). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, this audit examined: 

1. the disclosure of individual contributors' occupation and name of employer; 

2. the disclosure of disbursements, debts and obligations; 

3. the disclosure of expenses allocated between federal and non-federal accounts; 

4. the consistency between reported figures and bank records; 

5. the disclosure of independent expenditures; 

6. the completeness of records; and 

7. other committee operations necessary to the review. 

Commission Guidance 

Request for Early Commission Consideration of a Legal Question 

Pursuant to the Commission's "Policy Statement Establishing a Program for Requesting 

Consideration of Legal Questions by the Commission," several state party committees 

unaffiliated with KDC requested early consideration of a legal question raised during 

audits covering the 2010 election cycle. Specifically, the Commission addressed whether 

monthly time logs under 11 CFR §106.7(d)(l) were required for employees paid with 100 

percent federal funds. 

The Commission concluded, by a vote of 5-1, that 11 CFR § 106.7(d)(1) does require 

committees to keep a monthly log for employees paid exclusively wi& federal hinds. 

Exercising its prosecutorial discretion, however, the Commission decided it will not 

pursue recordkeeping violations for the failure to keep time logs or to provide affidavits 

to account for employee salaries paid with 100 percent federal funds and reported as 

such. The Audit staff informed KDC representatives of the payroll log requirement and 

of the Commission's decision not to pursue recordkeeping violations for failure to keep 

payroll logs for salaries paid and correctly reported as 100 percent federal. This audit . 

report does not include any findings or recommendations with respect to KDC employees 

paid with 100 percent federal funds and reported as such. 
Partn 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration July 12,1975 

• Audit Coverage January 1,2011 - December 31,2012 

Headquarters Frankfort, Kentucky 

Bank Information 

• Bank Depositories One 

• Bank Accounts Three Federal, Two Non-federal 

Treasurer 

• Treasurer When Audit Was Conducted Frederick A. Higdon (5/12/2011- 4/11/2013) 

M. Melinda A. Kams (4/12/2013 - Present) 

• Treasurer During Audit Period David Tandy (3/23/2000 -5/11/2011) 

Frederick A. Higdon (5/12/2011- 4/11/2013) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

Cash-on-hand ® January 1,2011 S 144,014 

Receipts 

o Contributions from Individuals 3,284,010 

o Contributions from Political Cormnittees 233,585 

o Transfers from Affiliates 1,337,724 

o Transfers from Non-federal Accounts 160,055 

o All Other Receipts 261,284 

Total Receipts $ 5,276,658 

Disbursements 

o Operating Expenditures 2,517,459 

o Transfers to Affiliates 404,050 

o Transfers to Non-federal Accounts 1,507,682 

o Coordinated Expenditures 9,953 

o Contribution Refunds 6,150 

o Federal Election Activity 700,805 

o All Other Disbursements 87,212 

Total Disbursements S 5,233311 

Cash-on-hand @ December 31,2012 S 187361 
Part III 

Summary 

Finding and Recommendation 

Recordkeeping for Employees 

During audit fieldwork, the Audit staff determined that KDC did not maintain any 

monthly payroll logs, as required, to document the percentage of time each employee 

spent in connection with a federal election. For 2011 and 2012, the Audit staff identified 

payments to KDC employees totaling $833,262, for which KDC did not maintain 

monthly payroll logs. This consisted of $820,979, for which payroll was allocated with 

federal and non-federal funds, and $12,283, for which payroll was exclusively nonfederal. Subsequent to the exit conference, KDC amended its reports to disclose 

$503,149 of the employee salaries, previously reported as allocated expenses, as 100 

percent federal expenses. The amended reports dd not preclude this matter fit)m the 

audit report because the amendments were filed after notification of the audit. 

The Audit staff verified the change in KDC's amended reports, and in light of the 

Commission's guidance with respect to recordkeeping for employees paid with 100 

percent federal funds and reported as such, the Audit staff concludes that no further 

action is necessary for the $503,149 in employee salaries. For the remaining salaries paid 

with an allocation of federal and non-federal funds ($317,830) or exclusively non-federal 

funds ($12,283), the Audit staff recommends that KDC provide monthly payroll logs that 

indicate the time spent in connection with a federal election. Absent the provision of 

monthly payroll logs, the Audit staff recommends that KDC implement a plan to 

maintain such monthly logs in the future. (For more detail, see p. 4.) 
Part IV 

Finding and Recommendation 

Recordkeeping for Employees 

Summary 

During audit fieldwork, the Audit staff determined that KDC did not maintain any 

monthly payroll logs, as required, to document the percentage of time each employee 

spent in connection with a federal election. For 2011 and 2012, the Audit staff identified 

payments to KDC employees totaling $833,262, for which KDC did not maintain 

monthly payroll logs. This consisted of $820,979, for which payroll was allocated with 

federal and non-federal funds, and $12,283, for which payroll was exclusively nonfederal. Subsequent to the exit conference, KDC amended its reports to disclose 

$503,149 of the employee salaries, previously reported as allocated expenses, as 100 

percent federal expenses. The amended reports did not preclude this matter from the 

audit report because the amendments were filed afrer notification of the audit. 

The Audit staff verified the change in KDC's amended reports, and in light of the 

Commission's guidance with respect to recordkeeping for employees paid with 100 

percent federal funds and reported as such, the Audit staff concludes that no further 

action is necessary for the $503,149 in employee salaries. For the remaining salaries paid 

with an allocation of federal and non-federal funds ($317,830) or exclusively non-federal 

funds ($12,283), the Audit staff recommends that KDC provide monthly payroll logs that 

indicate the time spent in connection with a federal election. Absent the provision of 

monthly payroll logs, the Audit staff recommends that KDC implement a plan to 

maintain such monthly logs in the future. 

Legal Standard 

Maintenance of Monthly Logs. Party committees must keep a monthly log of the 

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

Allocations of salaries, wages, and fringe benefits are to be undertaken as follows: 

• employees who spend 25 percent or less of their compensated time in a given 

month on federal election activities must be paid either from the federal account 

or be allocated as administrative costs; 

• employees who spend more than 25 percent of their compensated time in a given 

month on federal election activities must be paid only from a federal account; and, 

• employees who spend none of their compensated time in a given month on federal 

Section activities may be paid entirely vrith funds that comply with State law. 

11 CFR§ 106.7(d)(1). 
Facts and Anal3rsis 

A. Facts 

During fieldwork, the Audit staff reviewed disbursements for payroll. KDC did not 

maintain any monthly payroll logs or equivalent records to document the percentage of 

time each employee spent in connection with a federal election. These logs are required 

to document the proper allocation of federal and non-federal funds used to pay employee 

salaries and wages. For 2011 and 2012, KDC did not maintain logs for $833,262 in 

payroll.^ This amount includes payroll paid as follows to KDC employees. 

A. Employees reported on Schedule H4 (Payments for Allocable Expenses) and 

paid with a mixture of federal and non-federal funds during the same month 

(totaling $820,979); and 

B. Employees paid exclusively with non-federal funds in a given month and not 

reported by KDC (totaling $12,283). 

The Audit staff requested that KDC provide documentation to verify the time employees 

spent on federal election activity. In response, KDC provided signed affidavits for seven 

employees who worked in 2012. The affidavits stated the employee name, job title and 

responsibilities, the time period covered by the affidavit and the funding used. They also 

included a brief statement conceming the time spent on federal election activity. KDC 

provided no affidavits for employees who worked in 2011. 

The affidavits provided by KDC do not resolve the recordkeeping finding because they 

were prepared after notification of the audit. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the recordkeeping requirement with KDC representatives 

during audit fieldwork and at the exit conference. KDC's counsel stated that, even 

though payroll was reported as an allocable expense on Schedule H4, KDC did not make 

the necessary transfer of non-federal funds to cover its portion of the expense. Thus, 

counsel contended that time logs were not required since the payroll had been paid with 

100 percent federal funds. At the exit conference, counsel a^ed whether amending the 

disclosure reports by moving the payroll disclosed on Schedule H4 to Schedule B, Line 

30b (Federal Election Activity Paid Entirely with Federal Funds) would negate the 

finding. The Audit staff responded that the finding would remain in the audit report 

regardless of any such amendments, since KDC, at the time of the audit, disclos^ these 

transactions as allocable expenses on Schedule H4. Subsequent to the exit conference, 

KDC filed amended reports to disclose $503,149 in payroll on Schedule B, Line 30b; 

thus, leaving $317,830 still on Schedule H4. The Audit staff verified that KDC had not 

made the transfers from its non-federal account to cover the $503,149 now reported as 

100 percent federal election activity. As such, no further action is necessary with respect 

to the payroll totaling $503,149 paid with 100 percent federal funds. 

' This total includes payroll for employees paid with 100 percent federal funds and reported as such. 

Subsequent to the exit conference, KDC filed amended reports which disclosed payroll transactions, 

previously disclosed as allocable expenses on Schedule H4, as 100% federal expenses on Schedule B, 

Line 30b. Payroll amounts are stated net of taxes and benefits. 
The Audit staff recommends that, within 30 calendar days of service of this report, for the 

remaining payroll reported on Schedule H4 ($317,830) and payroll paid exclusively with 

non-federal fhnds ($12,283), KDC provide evidence that it maintained monthly time logs 

to document the percentage of time each employee spent in connection with a federal 

election or implement a plan to maintain monthly payroll logs in the future.