A01-01

FEDERAL ELECTION COMMISSION

WASHINGTON DC Jar,

June 3, 2002

Ms. Christine Grams, Treasurer
Rod Grams for U.S. Senate
P.O. Box 1029

Anoka, MN 55303

Dear Ms. Grams:

Attached please find the Report of the Audit Division on Rod Grams for U.S
Senate (Final Audit Report). The Commission approved the report on May 31. 2002.

The Commission-approved Final Audit Report will be placed on the public record
on June 10,2002. Should you have any questions regarding the public release of the
report, please contact the Commission's Press Office at (202) 694-1220. Any questions
you have related to matters covered during the audit or in the report should be directed to
Rickida Skinner or Marty Favin of the Audit Division at (202) 694-1200 or toll free at
(800) 424-9530

Sincerely,

wht

/ 7 Foseph F. Stoltz
, Assistant Staff Director
/ Audit Division

ec: Timothy B. Schmidt

Attachment as stated

Page 11 of 13 Approved 5/31/02


Page 2 of 13. Approved 5/31/02


Section 110.1(1)(5) of Title 11 of the Code of Federal Regulations states,
in part, that if a political committee does not retain the written records concerning
redesignation or reattribution, the redesignation or reattribution shall not be effective. and
the original designation or attribution shall control.

Section 110.9(a) of Title 11 of the Code of Federal Regulations states that
no candidate or political committee shall accept any contribution or make any
expenditure in violation of the provisions of part 110. No officer or employee of a
political committee shall accept a contribution made for the benefit or use of a candidate.
or make any expenditure on behalf of a candidate, in violation of any limitation imposed
on contributions and expenditures under this part 110.

1. Contributions from Individuals

RGFS’s contribution records consisted of the following: an
electronic database containing contribution information for donations deposited between
January 26, 1992, and May 21, 2001 '; copies of contributor checks deposited between
May 1999 and January 2001; some copies of redesignation/reattribution forms apparently
completed by the contributors; and contribution refund files.

A review of contributions from individuals for compliance with the
2 U.S.C. §441a(a)(1)(A) limitation indicated that RGFS accepted excessive contributions
totaling $157,378 from 237 individuals ($138,924 related to the Primary election and
$18,454 related to the General election). Many of the reported entries on the
Committee’s Schedules A (Itemized Receipts) indicated that these contributions had been
reattributed among individuals, such as spouses. or redesignated to another election.
However, the available contribution records did not support these redesignations and
reattributions.

The $138,924 in excessive contributions related to the Primary
election was comprised of $27,743 of untimely redesignations and reattributions, $26,882
of untimely refunds”, and $84.299 of contributions that lacked adequate redesignation
and reattribution documentation. The $18,454 in excessive contributions related to the
General election was comprised of $1,500 of untimely redesignations and reattributions,
$600 of untimely refunds, and $16,354 of contributions that lacked adequate
redesignation and reattribution documentation.

The Audit staff also performed an analysis of contributions and
disbursements to determine whether any of the contributions designated for the general
election had been spent on primary election expenses. The analysis was performed using
election designations for contributions and disbursements as entered by RGFS on its

' As originally submitted. the database appeared to contain significantly fewer contributions than reported
by RGFS. The missing contributions had been marked for deletion in the database. but were recovered
and restored to complete submitted information.

> Eleven of these refund checks, totaling $4.552. are still outstanding

Page 7 of 13. Approved 5/31/02


° the contribution was designated in writing for a particular election and the
contribution was made after that election and the contribution cannot be
accepted under the net debts outstanding provisions of 11 CFR
§110.1(b)(3);

° the contribution was not designated in writing for a particular election, and
the contribution exceeds the limitation on contributions set forth in
11 CFR §110.1(b)(1); or

° the contribution was not designated in writing for a particular election. and
the contribution was received after the date of an election for which there
are net debts outstanding on the date the contribution is received.

Further, a contribution shall be considered to be redesignated for another
election if the treasurer of the recipient authorized political committee requests that the
contributor provide a written redesignation of the contribution and informs the
contributor that the contributor may request the refund of the contribution as an
alternative to providing a written redesignation and, within sixty days from the date of the
treasurer’s receipt of the contribution, the contributor provides the treasurer with a
written redesignation of the contribution for another election, which is signed by the
contributor.

Section 110.1(k) of Title 11 of the Code of Federal Regulations states any
contribution made by more than one person, except for a contribution made by a
partnership, shall include the signature of each contributor on the check, money order, or
other negotiable instrument or in a separate writing and if a contribution made by more
than one person does not indicate the amount to be attributed to each contributor, the
contribution shall be attributed equally to each contributor.

If a contribution to a candidate or political committee, either on its face or
when aggregated with other contributions from the same contributor, exceeds the
limitations on contributions set forth in 11 CFR §110.1(b), (c) or (d), as appropriate, the
treasurer of the recipient political committee may ask the contributor whether the
contribution was intended to be a joint contribution by more than one person. A
contribution shall be considered to be reattributed to another contributor if the treasurer
of the recipient political committee asks the contributor whether the contribution is
intended to be a joint contribution by more than one person, and informs the contributor
that he or she may request the return of the excessive portion of the contribution if it is
not intended to be a joint contribution, and within sixty days from the date of the
treasurer’s receipt of the contribution, the contributors provide the treasurer with a
written reattribution of the contribution, which is signed by each contributor, and which
indicates the amount to be attributed to each contributor if equal attribution is not
intended.

Page 6 of 13. Approved 5/31/02


Unless specifically discussed below, no material non-compliance with
statutory or regulatory requirements was detected. It should be noted that the
Commission may pursue further any of the matters discussed in this report in an
enforcement action.

Il. AUDIT FINDING AND RECOMMENDATION

RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION

Section 441a(a)(1)(A) of Title 2 of the United States Code states that no
person shall make contributions to any candidate and his authorized political committees
with respect to any election for Federal office which, in the aggregate, exceed $1,000.

Subsection (b)(2) of 11 CFR §110.1 explains that with respect to any’
election means that if the contribution is not designated in writing by the contributor for a
particular election then the contribution applies to the next election for that Federal office
after the contribution is made. Subsection (b)(6) of 1! CFR §110.1 explains that a
contribution is considered made when the contributor relinquishes control over the
contribution by delivering the contribution to the Candidate, the political committee, or
an agent of the political committee. A contribution mailed is considered made on the
date of the postmark.

Sections 103.3(b)(3) and (4) of Title 11 of the Code of Federal
Regulations state, in part, that contributions which exceed the contribution limitations
may be deposited into a campaign depository or returned to the contributor. If any such
contribution is deposited, the treasurer may request redesignation or reattribution of the
contribution by the contributor in accordance with 1] CFR 110.1(b) or 110.1(k). Ifa
redesignation or reattribution is not obtained, the treasurer shall, within 60 days of the
treasurer's receipt of the contribution, refund the contribution to the contributor. Further,
any contribution which appears to be illegal under 11 CFR 103.3(b)(3), and which is
deposited into a campaign depository shal] not be used for any disbursements by the
political committee until the contribution has been determined to be legal. The political
committee must either establish a separate account in a campaign depository for such
contributions or maintain sufficient funds to make all such refunds.

Section 110.1(b)(5)(i) and (ii) of Title 11 of the Code of Federal
Regulations states, in part, that the treasurer of an authorized political committee may

request a written redesignation of a contribution by the contributor for a different election
ift

° the contribution was designated in writing for a particular election, and the
contribution, either on its face or when aggregated with other
contributions from the same contributor for the same election. exceeds the
limitation at 11 CFR §110.1(b)(1);

Page Sof 13 Approved 5/31/02



conferences or seminars. On July 26, 2001, Ms. Christine Grams replaced Mr. Schmidt
as Treasurer, and is currently serving in that capacity. RGFS maintains its headquarters
in Anoka, Minnesota.

RGFS used commonly available campaign management software for
recordkeeping and filed reports electronically in 1999 and 2000. Mr. Schmidt handled
the FEC reporting function. Other paid campaign staff were responsible for maintaining
RGES records and the bank accounts indicated below. Mr. Schmidt's firm was also paid
for accounting and tax services.

To manage its financial activity, RGFS maintained three checking
accounts, five money market accounts and four certificates of deposit. From these
accounts, approximately 2,374 disbursements were made, totaling $6,032,729. RGFS’s
receipts were comprised of the following: approximately 76,000 contributions from
individuals, totaling $3,722,468; approximately 1.300 contributions from political
committees, totaling $1,899,691; joint fundraising proceeds, totaling $143,229; 44 offsets
to operating expenditures, totaling $102,418; and. interest earned, totaling $40,890.

D. AUDIT PROCEDURES

In maintaining its receipt records, RGFS satisfied the minimum
recordkeeping requirements of 11 CFR §102.9; however, the Audit staff's testing of
contributions prior to May 1999 was limited by the lack of external documentation such
as copies of contributor checks.

Following FEC-approved procedures, the Audit staff evaluated various
risk factors and as a result, the scope of this audit was limited to the following general

categories:

1. the receipt of contributions or loans in excess of the statutory
limitations (see Section II.);

2. the receipt of contributions from prohibited sources, such as those
from corporations or labor organizations;

3. proper disclosure of contributions from individuals, political
committees and other entities, to include the itemization of
contributions when required. as well as, the completeness and
accuracy of the information disclosed:

4, the accuracy of total reported receipts. disbursements and cash
balances as compared to bank records;

5. adequate record keeping for RGFS transactions; and

6. other audit procedures that were deemed necessary in the situation.

Page 4 of 13 Approved 5/31/02


FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

June 10, 2002

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. stout [FG
ASSISTANT STAF CTOR

AUDIT DIVISION /
SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
ROD GRAMS FOR U.S. SENATE
Attached please find a copy of the final audit report and related documents on the

Rod Grams for U.S. Senate that was approved by the Commission on May 31, 2002.

The report may be released to the public on June 10, 2002

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library


that these contributions be disclosed on Schedules D (Debts and Obligations) until such
time that funds became available to make the refunds.

In response to the interim audit report, the current RGFS treasurer
acknowledged that the excessive contributions received from June through early
September 2000 resulted from the failure of RGFS to receive timely redesignation or
reattribution documentation and that RGFS underwent turnover with respect to staff
responsible for the data entry of contributor information. She added that she had been
informed by RGFS staff employed at that time that the software repeatedly malfunctioned
by deleting contributor records for no reason and that these “performance glitches
undoubtedly contributed to the Committee’s difficulties in maintaining accurate
contributor records for this time period.”

Also included in the response was a document entitled Excessive
Contributions Process, dated July 7, 2000, that set forth procedures for RGFS staff when
excessive contributions were received during various time periods. These procedures
included the following: sending refund checks with follow-up phone calls; arranging
personal meetings with donors to request an exchange of checks: sending out
redesignatior/reattribution letters and business reply envelopes with follow-up phone
calls; and, printing all information relative to excessive contributions to give to a
particular staff person for follow-up. The treasurer stated that she had “*...no reason to
believe these procedures were not followed with respect to each of the contributions in
question; however, after a duly diligent search, the Committee has been unable to locate
reattribution or redesignation letters from these contributors with respect to these
contributions.”

Included with the response were copies of redesignation/
reattribution statements dated March 5, 2002, apparently sent to each of the contributors
in question, and copies of the front and back of negotiated refund checks for seven
refunds, totaling $4,415. There were also copies of the front only of two $1,000 refund
checks, totaling $2,000. All nine of the refund checks were dated October 2001 or later,
more than a year after RGFS’s receipt of the contributions. RGFS also provided
documentation for $3,154 in contributions it intends to refund and information on data
entry errors made relative to some of the noted excessive contributions. The RGFS
treasurer stated that this matter ‘...consisted of an isolated problem over a short period of
time, not systemic, willful conduct” and added that “[t]aken in context, this small error
demonstrates the Committee’s commitment to compliance with FEC regulations and is
grounds for no further FEC action in this matter.”

In summary, of the $100,653 in excessive contributions received
from individuals, RGFS has provided evidence of refunds totaling $4,415. Therefore,
excessive contributions totaling $96.238 ($100,653 - $4,415) are still considered
unresolved. No documentation was provided that demonstrated that the ]] contribution
refunds noted in footnote 2, totaling $4,552, and the two $1,000 refunds noted above,
cleared RGFS’s bank account.

Page 9 of 13. Approved 5/31/02



database. The analysis shows that contributions designated by RGFS for the general
election were spent on primary related activity in the beginning of the audit period,
approximately January 1, 1999 through February 16, 1999. The largest amount of
general funds used for primary activity was approximately $35,000 on January 20, 1999.
The analysis also demonstrates that RGFS used excessive primary contributions on
primary related activity from February 1, 1999 through February 18, 1999. RGFS did not
maintain a separate account to deposit questionable contributions but did consistently
maintain a sufficient balance to cover the amounts deposited in excess of the limitation
from February 19, 1999 until just prior to the General election?

Mr. Schmidt, the former treasurer, stated at an interim conference
that the software program used by RGFS was supposed to notify RGFS staff when a
contribution was excessive. At the exit conference, RGFS officials were given detailed
schedules of the excessive contributions discussed above. They offered no comment. In
response to the exit conference, RGFS officials provided additional redesignation and
reattribution documentation the Audit staff considered in its review and the appropriate
adjustments were made to arrive at the figures discussed above.

2. Contributions from Unregistered Political Organizations

The review of contributions from political committees indicated
that RGFS received eight contributions from six unregistered political organizations that
exceeded the 2 U.S.C. §441a(a)(1)(A) limitation by $2,975. All eight were attributable to
the 2000 Primary election. These items were designated as “primary” on both the RGFS’
contributions database and reported entries on Schedules A. No documentation was
made available relative to these items.

At the exit conference, the Audit staff explained to RGFS officials
that these contributions were considered excessive because unregistered political
organizations are limited to contributions aggregating $1,000 per election. RGFS
officials were given a detailed schedule of the excessive contributions. They offered no
comment.

3. Response to the Interim Audit Report

In the interim audit report, the Audit staff recommended that
RGFS provide evidence demonstrating that the contributions in question were not
excessive or that they were timely redesignated. reattributed, or refunded. Absent such
evidence, it was recommended that RGFS refund $100,653 ($84,299 + $16,354) to the
individual contributors, $2,975 to the unregistered political organizations, and provide
evidence of such refunds (photocopies of the front and back of the negotiated refund
checks). It was further recommended that RGFS provide evidence that the checks have
cleared relative to the 11 contribution refunds, totaling $4,552, noted in footnote 2. If
funds were not currently available to make the necessary refunds, it was recommended

3 The latest FEC report filed by RGFS (2001 Year-End Report) disclosed a cash-on-hand balance of
($219.20) as of December 31, 2001.

Page 8 of 13. Approved 5/31/02


AOI-01
FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20404

REPORT OF THE AUDIT DIVISION
ON

ROD GRAMS FOR U.S. SENATE

L BACKGROUND
A. AUDIT AUTHORITY

This report is based on an audit of Rod Grams for U.S. Senate (RGFS),
undertaken by the Audit Division of the Federal Election Commission (FEC) in
accordance with the provisions of the Federal Election Campaign Act of 1971, as
amended (the Act). The audit was conducted pursuant to Section 438(b) of Title 2 of the
United States Code that states, in part, that the FEC may conduct audits and field
investigations of any political committee required to file a report under Section 434 of
this title. Prior to conducting any audit under this subsection, the FEC shall perform an
internal review of reports filed by selected committees to determine if the reports filed by
a particular committee meet the threshold requirements for substantial compliance with
the Act.

B. AUDIT COVERAGE

The audit covered the period from January 1, 1999 through December 31,
2000. RGFS reported a beginning cash balance of $139.864. total receipts for the audit
period of $5,902,550; total disbursements for the audit period of $6,024.870. and, an
ending cash balance of $17,544

Cc. CAMPAIGN ORGANIZATION

RGFS registered with the Secretary of the Senate on November 30, 1993
as the principal campaign committee for Rodney Dwight Grams, Republican candidate
for the U.S. Senate from the state of Minnesota. The Treasurer of RGFS for the period
covered by the audit was Mr. Timothy B: Schntidts Mr: Schmidt, a CPA, had previous
experience with campaign reporting and recordkeeping, but has never attended any FEC

Page 3 of 13 Approved 5/31/02


AO1-01

FEDERAL ELECTION COMMISSION
Washington, DC 20463

ROD GRAMS FOR U.S. SENATE
EXECUTIVE SUMMARY

Rod Grams for U.S. Senate (RGFS) registered with the Secretary of the Senate on
November 30, 1993 as the principal campaign committee for Rodney Dwight Grams,
Republican candidate for the U.S. Senate from the state of Minnesota.

The audit was conducted pursuant to 2 U.S.C. §438(b), which states that the
Commission may conduct audits of any political committee whose reports fail to meet
the threshold level of compliance set by the Commission. The one finding from the audit
was presented to the Committee at the completion of fieldwork on November 19, 2001
and later in the interim audit report. The relevant parts of the Committee's response to
this finding are included in the audit report.

The following is an overview of the finding contained in the audit report.

Receipt of Contributions in Excess of the Limitation — 2 U.S.C. §441a(a)(1A); 11
CFR 103.3(b). A review of RGFS’s receipt records identified contributions from 237

individuals that were in excess of the limitation by $157,378 ($138,924 related to the
Primary election and $18,454 related to the General election). Of these excessive
contributions, $100,653 lacked adequate redesignation and reattribution documentation.
In addition, RGFS received eight contributions attributable to the 2000 Primary election
from six unregistered political organizations that were in excess of the limitation by
$2,975.

In response to the interim audit report, RGFS provided evidence of refunds from
individuals totaling $4,415. Therefore excessive contributions totaling $96.238
($100,653 - $4,415) are still considered unresolved. RGFS also agreed to refund the
eight excessive contributions, totaling $2,975, to the unregistered political organizations
or disclose these items as debts if sufficient funds do not exist to make the refunds.

Page 1 of 13 Approved 5/31/02


Page 12 of 13

Approved 5/31/02


TABLE OF CONTENTS

ROD GRAMS FOR U.S. SENATE

Executive Summary

Final Audit Report
Background
Finding

Transmittal to Committee

Chronology

PAGE

1

uw


REPORT OF THE AUDIT DIVISION
ON THE

ROD GRAMS FOR U.S. SENATE

Approved May 31, 2002

FEDERAL ELECTION COMMISSION
999 E STREET, N.W.
WASHINGTON, D.C.



Also in the response to the interim audit report. RGFS agreed to
refund the eight excessive contributions, totaling $2,975, to the unregistered political
organizations and disclose these contributions as debts if sufficient funds do not exist to
make refunds.

Page 10 of 13 Approved 5/31/02


CHRONOLOGY

ROD GRAMS FOR US SENATE

Audit Fieldwork

Interim Audit Report to
the Committee

Response Received to the
Interim Audit Report

Final Audit Report to Commission

Final Audit Report Approved

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8/14/01 to 11/19/01

2/07/02

3/13/02
5/24/02

5/31/02

Approved 5/31/02