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---riE!.\SiAT 

/riMxC-I* AM Q: 11 FEDERAL ELECTION COMMISSION ^ y- 11 

WASHINGTON, D.C. 204U 

February 3,2015 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer po 

Staff Director /T 

From: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister""^ 

Assistant Staff Director 

Audit Division 

Kendrick Smith^^" 

Audit Managef^^ 

Zuzana O. Pacious 

Audit Manager 

By: Scott Dotzler 

Lead Auditor ^ ^ 

Subject: Audit Division Recommendation Memorandum on the Kentucky State 

Democratic Central Executive Committee (KDC) (A 12-05) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendation below and discusses the finding in the 

attached Draf^ Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendation. 

Recordkeeping for Employees 

For the period covered by the audit, KDC did not maintain any monthly payroll 

logs or equivalent records, as required, to document the percentage of time each 

employee spent in connection with a federal election. For 2011 and 2012, KDC 

did not maintain monthly logs for S833,262 in payroll. This amount includes 

payroll paid to KDC employees as follows. 

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 S820,979). 
B. Employees paid exclusively with non-federal funds in a given month and 

not reported by KDC (totaling SI2,283). 

Subsequent to the exit conference at the conclusion of audit fieldwork, KDC 

amended its reports to disclose SS03,149 of the employee salaries, previously 

reported as allocated expenses on Schedule H4, as 100 percent federal expenses on 

Schedule B, Line 30b (Federal Election Activity Paid Entirely with Federal 

Funds); 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 

SS03,149 now reported as 100 percent federal election activity. As such, no 

further action was necessary with respect to the payroll totaling $503,149 and paid 

with 100 percent federal funds. 

In response to the Interim Audit Report recommendation, KDC stated that it does 

not have any specific documents to supplement the information that had already 

been provided to the Commission. KDC further added that it had 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. KDC did not 

provide any additional information or documentation in its response to the DFAR. 

The Audit staff recommends 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. 

KDC did not request an audit hearing. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 

In case of an objection, Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Scott Dotzler or Kendrick Smith at 694-

1200. 

Attachment: 

Draff Final Audit Report of the Audit Division on the Kentucky State Democratic Central 

Executive Committee 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on the 

Kentucky State Democratic 

Central Executive Committee 

(Januaiy 1, 2011 - December 31, 2012) 

Why the Audit 

Was Done 

Federal law permits the 

Cpmmission 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 complii 

with the Act.^ TTie au( 

determines 

commiitercomp 

the ligations, 

prombit 

disclosun nents 

of the Aci. 

Future Action 

The Commission ma^ 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

About the Committee 

The Kentucky State Democrat^ l^h-al Executive Committee is 

a state party committee headfl^ sred in Frankfort, Kentucky. 

For more information, se^pa^ Committee Organization, 

p. 2. 

Financia|ii^-i ivi 

• Receipts j 

o Contributions'!! 

o ^Contributions fi 

ittees 

m Affi' 

idividuals 

ical 

iii-i-iii nil 

penditures 

Transfers to Affiliates 

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 

$ 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 C'the Act"), was 

transferred 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. §43g(b)). 
Draft Final Audit Report of the 

Audit Division on the 

Kentucky State Democratic 

Central Executive Committee 

(January 1, 2011 - Deceng^i^ 31, 2012) 

A 

* -k 

s. 
Table of Contents 

Page 

Parti. Background 

Authority for Audit 

Scope of Audit 

Conunission Guidance 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summary 

Finding and Recommendation 

Part IV. Finding and Recom 

Recordkeeping for Employees 

ill ion 

2 

2 

r 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). Prio^^^qducting any audit 

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

by selected committees to determine whether the reports^^T^^particular committee 

meet the threshold requirements for substantial compliai!^ with^ 52 U.S.C. 

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

aluated vai isk 

Scope of Audit ^ 

Following Commission-approved procedures, I 

factors and as a result, this audit examined: 

1. the disclosure of individual contri^tors' occui ^ name of employer; 

2. the disclosure of disbursements, 

3. the disclosure of expenses allocate^^^^nJ^eral an federal accounts; 

4. the consistency between reported figuigs iif 

5. the completeness of records: and 

6. other committee op^lil^ cessary tO^ i review. 

Commissioif^ (iiiidaiu^' 

Reques ration of a Legal Question 

audits covi 

monthly time 

percent federal 

jcy Statement Establishing a Program for Requesting 

Commission," several state party committees 

iy consideration of a legal question raised during 

on cycle. Specifically, the Commission addressed whether 

FR §106.7(d)(l) were required for employees paid with 100 

The Commission cof ied, 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, 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 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. 
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 

• Bank Depositories One 

• Bank Accounts Three Federaj#^^ federal 

Treasurer 

• Treasurer When Audit Was Conducted FredericSP&!4iigdon ^11- 4/11/2013) 

M. Ml^da A. Kams (4/i^P^3 - Present) 

• Treasurer Treasurer During Audit Period Da^gandy ^3^3/2000 -S/i^^sl") 

fxeSi ^on (5/12/201^/11/2013) 

Management Information 

• Attended Commission Campaign Fim 

Seminar 

Yes 

Who Handled Accounting and 

Recordkeeping Tasks 

Ovurviuw^ of Fi 

4 idited 

nciaf Activity 

nts) 

Cash-on-hand^^$dii"i' 'i' S 144,014 

Receipts 

o Contortions from Inl^^uaio 3,284,010 

o ConiSi^^^s from Politic )mn^^es 233,585 

o Transfersl^^ Affiliates ' 1,337,724 

o Transfers ffom^^-federa counts 160,055 

o All Other Recei^^' 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 $ 5,233,311 

Cash-on-hand @ December 31,2012 $ 187,361 
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 og^ie each employee 

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

payments to KDC employees totaling $833,262, for which 

monthly payroll logs. This consisted of $820,979, for' 

federal and non-federal funds, and $12,283, for whic 

federal. Subsequent to the exit conference, KDC. 

$503,149 of the employee salaries, previously r^rted as 

percent federal expenses. The amended repora^toot ] 

audit report because the amendments were filed i 

The Audit staff verified the accuracy^ 

Commission's guidance with respect 1 

percent federal funds and reported as su 

action was necessary with respect to 

salaries. 

In response to the^ 

recordkeeping for the1 

track and dc o tHI 

emplo ^ per^^^)r less o: 

and fei election"W^ :s. 

not maintain 

was allocated with 

lively nonits reports fl^sclose 

located exp^^ 100 

jde this matte . the 

Ltmn of the aud^. 

1, and in light of the 

s paid with 100 

^at no further 

,149 in employee 

ion, KDC addressed the 

: it has implemented procedures to 

11 or in part with non-federal funds, 

• time in connection with federal elections 

; 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 ^e each employee 

spent in coimection with a federal election. For 2011 and 2012^^^dit staff identified 

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

monthly payroll logs. This consisted of $820,979, for wl^^^mll was allocated with 

federal and non-federal funds, and $12,283, for which ps^oll A^^mlusively nonfederal. Subsequent to the exit conference, KDC am^je^s repon^Ldisclose 

$503,149 of the employee salaries, previously as allocated e^^ as 100 

percent federal expenses. The amended reports^l not prqdude this mi ^ the 

audit report because the amendments were filM^ itifip^n of the ^ ^ 

The Audit staff verified the accuracy^f KDC's amei morts, and in light of the 

Commission's guidance with respectt lkeepiii_ ^Mloyeespaid with 100 

percent federal funds and reported as i ^udit staff c^^^d Aat no further 

action was necessary with respect to n e $5^149 in employee 

salaries. 

In response to the Irrt^'m A 

recordkeeping for,:t^^jEnainin! 

track and document, to 

employees %^^k 25 

and fedetsd^^^^m i« 

irt recoi^endation, KDC addressed the 

330,113 by slating it has implemented procedures to 

z paid Wor in part with non-federal funds, 

time in connection with federal elections 

Le^^^ndard 

Mainten^eof Month I 

percentage^Htoe each e: 

Allocations of^^pes, wi 

• employees' 

month on fi 

or be allocat 

gs. F^rty committees must keep a monthly log of the 

lyee spends in connection with a federal election. 

I, and fringe benefits are to be undertaken as follows: 

25 percent or less of their compensated time in a given 

election activities must be paid either from the federal account 

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)(l).. 
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 

to document Ae 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 A^cable Expenses) and 

paid with a mixture of federal and non-federal fui mhg the same month 

(totaling $820,979); and 

B. Employees paid exclusively with non-federal^^ :iven month and not 

reported by KDC (totaling $12,283). 

The Audit staff requested that KDC provide di 

spent on federal election activity. In respo: 

employees who worked in 2012. The affidavits 

responsibilities, the time period covered by the affn 

included a brief statement conceming^e time spent 

provided no affidavits for employees ^ ed in 201 

The affidavits provided by KDC did not 

were prepared after noti l of the ai 

B. Interim Audit 

The Audit staff dis 

during audit fieldwork 

though pa 

thene 

intended 

federal fum 

rts by m« 

ion A 

itaff 

itation to verify . toe employees 

signed affi^^te^r seven 

iloyee name, ^o title and 

funding used. They also 

election activity. KDC 

ping finding because they 

lit Divisiod^ecommendation 

ing r^uirements with KDC representatives 

KDC's counsel stated that, even 

e on Schedule H4, KDC did not make 

fimds to cover its portion of the expense. Thus, 

it required since the payroll had been paid with 

conference, counsel asked whether amending the 

disclosed on Schedule H4 to Schedule B, Line 

' Paid Entirely with Federal Fimds) would negate the 

nded that the finding would remain in the audit report 

lents, since KDC, at the time of the audit, disclosed these 

transactions as allocSpi^ 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 

finding. They 

regardless of any 

^ This total includes payroll for employees paid with 100 percent federal iiinds 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. 
respect to the recordkeeping for payroll totaling $503,149 and paid with ICQ percent 

federal fiinds. 

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

Schedule H4 ($317,830) and payroll paid exclusively with noii-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 recommendation, KD^^Bh^sel stated that 

KDC does not have any specific documents to supplement tib^mformation that has 

already been provided to the Commission. Counsel fiirt^^^ KDC has 

implemented procedures to track and document, to thqe^^t th> paid all or in part 

with non-federal funds, employees that work 25 pe^^-^oAess • ^ e in 

connection with federal elections and federal e activities.