Final Audit Report of the 

Commission on the Kentucky 

State Democratic Central 

Executive Committee 

(jEinuaiy 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.^ The 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 committee 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 

Commission Finding (p. 4) 

• Recordkeeping for Employees 

Additional Issue (p. 4) 

• Recordkeeping for Employees 

$ 3,284,010 

233,585 

1,337,724 

160,055 

261,284 

$5,276,658 

$ 2,517,459 

404,050 

1,507,682 

9,953 

6,150 

700,805 

87,212 

$5,233,311 

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

transferred from Title 2 of the United States Code to new Title S2 of the United States Code. 

^ 52U.S.C.§3011i(b). 
Final Audit Report of the 

Commission 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 

Audit Hearing 2 

Part II. Overview of Committee 

Committee Organization 3 

Overview of Financial Activity 3 

Part III. Summaries 

Commission Finding 4 

Additional Issue 4 

Part IV. Commission Finding 

Recordkeeping for Employees 6 

Part V. Additional Issue 

Recordkeeping for Employees 9 
Part I 

Backgrotmd 

Authority for Audit 

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

Conunittee (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), 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. Prior to conducting any audit under this subsection, the Commission must 

perform an intemal 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). 

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 completeness of records; and 

6. 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)(1) 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)(l) does require 

committees to keep a monthly log for employees paid exclusively with federal funds. 

Exercising its prosecutorial discretion, however, die 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 sta^ informed I^C 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. 
Audit Hearing 

KDC declined the opportunity for a hearing before the Commission on the matter 

presented in this report. 
Part II 

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 

a 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 

(Audited Amounts) 

Cash-on-hand @ January 1,2011 $ 144,014 

Receipts 

o Contributions from Individuals 3,284,010 

o Contributions from Political Committees 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 $5.233311 

Cash-on-hand @ December 31,2012 $ 187,361 
Part III 

Summaries 

Commission Finding 

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

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

The Audit stafr verified the accuracy of 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 concluded that no further 

action was necessary with respect to recordkeeping for the $503,149 in employee 

salaries. 

In response to the Interim Audit Report recommendation, KDC addressed the 

recordkeeping for the remaining $330,113 by stating it has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of Aeir time in connection with federal elections 

and federal election activities. 

The Commission approved a finding that KDC failed to maintain monthly payroll logs 

for the $820,979 that KDC disclosed as having been paid with an allocation of federal 

and non-federal fimds. The Commission did not approve the portion of the recommended 

finding related to the $12,283 in payroll paid exclusively with non-federal funds and, as 

such, these expenses are present^ as an "Additional Issue." (For more detail, see p. 6.) 

Additional Issue 

Recordkeeping for Employees 

As detailed in the Finding above, 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 non-federal. Subsequent to the 

exit conference, KDC amended its reports to disclose $503,149 of the employee salaries, 

previously reported as allocated expenses, as ICQ percent federal expenses. The amended 

reports did not preclude this matter from the audit report because the amendments were 

filed after notification of the audit. 

The Audit staff verified the accuracy of 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 concluded that no further 

action was necessary with respect to recordkeeping for the $503,149 in employee 

salaries. 

In response to the Interim Audit Report recommendation, KDC addressed the 

recordkeeping for the remaining $330,113 by stating it has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of Aeir time in connection with federal elections 

and federal election activities. 

The Commission did not approve, by the required four votes, the portion of the Audit 

staffs recommended finding that KDC failed to maintain monthly payroll logs for the 

$12,283 in payroll paid from an exclusively non-federal account during certain months. 

Pursuant to Commission Directive 70,^ these expenses are discussed in the "Additional 

Issue" section, and the payroll expenditures of $12,283 are not included in the Finding. 

(For more detail, see p. 9.) 

^ Available at http://www.fec.gov/directives/directive_70.pdf. 
Part IV 

Commission Finding 

I 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 after notification of the audit. 

The Audit staff verified the accuracy of 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 concluded that no further 

action was necessary with respect to recordkeeping for the $503,149 in employee 

salaries. 

In response to the Interim Audit Report recommendation, KDC addressed the 

recordkeeping for the remaining $330,113 by stating it has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of their time in connection with federal elections 

and federal election activities. 

The Commission approved a finding that KDC failed to maintain monthly payroll logs 

for the $820,979 that KDC disclosed as having been paid with an allocation of federal 

and non-federal funds. The Commission did not approve the portion of the recommended 

finding related to the $12,283 in payroll paid exclusively with non-federal funds and, as 

such, these expenses are presented as an "Additional Issue." 

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 

election activities may be paid entirely with 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 concerning the time spent on federal election activity. KDC 

provided no affidavits for employees who work^ in 2011. 

The affidavits provided by KDC did 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 requirements 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 asked 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, disclosed these 

* 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 percent federal expenses on Schedule 

B. Line 30b. Payroll amounts are stated net of taxes and benefits. 
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 was necessary with 

respect to the recordkeeping for payroll totaling $503,149 and paid with 100 percent 

federal funds. 

The Interim Audit Report recommended that, for the remaining payroll reported on 

Schedule H4 ($317,830) and payroll paid exclusively with non-federal funds ($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. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report reconmiendation, KDC's counsel stated that 

KDC does not have any specific documents to supplement the information that has 

already been provided to the Commission. Counsel further added that KDC has 

implemented procedures to track and document, to the extent they are paid all or in part 

with non-federal funds, employees that work 25 percent or less of their time in 

connection with federal elections and federal election activities. 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that KDC has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of their time in cormection with federal elections 

and federal election activities. 

E. Committee Response to the Draft Final Audit Report 

KDC did not provide any additional information or documentation in its response to the 

Draft Final Audit Report. 

Commission Conclusion 

On March 10,2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission find that KDC 

failed to maintain monthly payroll logs totaling $833,262, as required, to document the 

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

The Commission approved a finding that KDC failed to keep monthly payroll logs for the 

$820,979 that KDC disclosed as having been paid with an allocation of federal and nonfederal funds. The Commission did not approve the portion of the recommended finding 

related to the $12,283 in payroll paid exclusively with non-federal funds during a given 

month and, as such, the matter is presented in the "Additional Issue" section. 
Part V 

Additional Issue 

Recordkeeping for Employees 

As detailed in the Finding above, 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 non-federal. 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 after notification of the audit. 

The Audit staff verified the accuracy of 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 report^ as such, the Audit staff concluded that no further 

action was necessary with respect to recordkeeping for the $503,149 in employee 

salaries. 

In response to the Interim Audit Report recommendation, KDC addressed the 

recordkeeping for the remaining $330,113 by stating it has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of their time in connection with federal elections 

and federal election activities. 

The Commission did not approve, by the required four votes, the portion of the Audit 

staffs recommended finding that KDC failed to maintain monthly payroll logs for the 

$12,283 in payroll paid from an exclusively non-federal account during certain months. 

Pursuant to Commission Directive 70,^ these expenses are discussed in the "Additional 

Issue" section, and the payroll expenditures of $12,283 are not included in the Finding. 

Legal Standard 

The legal standard in the Finding above is incorporated herein. 

Facts and Analysis 

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 

Available at http.7/www.fec.gov/directives/diFective_70.pdf. 
10 

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 did 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 requirements 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 fiinds. At the exit conference, counsel asked 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, disclosed 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 was necessary with 

respect to the recordkeeping for payroll totaling $503,149 and paid with 100 percent 

federal funds. 

The Interim Audit Report recommended that, for the remaining payroll reported on 

Schedule H4 ($317,830) and payroll paid exclusively with non-federal funds ($12,283), 

KDC provide evidence that it maintained monthly time logs to document the percentage 

' 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 percent federal expenses on Schedule 

B, Line 30b. Payroll amounts are stated net of taxes and benefits. 
11 

of time each employee spent in connection with a federal election or implement a plan to 

maintain monthly payroll logs in the future. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, KDC's counsel stated that 

KDC does not have any specific documents to supplement the information that has 

already been provided to the Commission. Counsel further added that KDC has 

implemented procedures to track and document, to the extent they are paid all or in part 

with non-federal funds, employees that work 25 percent or less of their time in 

connection with federal elections and federal election activities. 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that KDC has implemented procedures to 

track and document, to the extent they are paid all or in part with non-federal funds, 

employees that work 25 percent or less of their time in connection with federal elections 

and federal election activities. 

E. Committee Response to the Draft Finai Audit Report 

KDC did not provide any additional information or documentation in its response to the 

Draft Final Audit Report. 

Commission Conclusion 

On March 10,2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended that the Commission find that KDC 

failed to maintain monthly payroll logs totaling $833,262, as required, to document the 

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

The Commission did not approve, by the required four votes, the portion of the Audit 

staffs recommended finding that KDC failed to maintain monthly payroll logs for the 

$12,283 in payroll paid exclusively from a non-federal account during certain months. 

Some Commissioners voted to approve the Audit staffs recommendation. Others did 

not, citing the position of three Commissioners in the Final Audit Report of the 

Commission on the Georgia Federal Elections Committee, in support of the proposition 

that the Commission lacks jurisdiction to impose recordkeeping and documentation 

requirements on exclusively non-federal activity. 

These expenses are discussed in the "Additional Issue" section pursuant to Commission 

Directive 70.^ 

^ Available at http://www.fec.gov/directives/diFective_70.pdf.