Part II
Overview of Campaign

Campaign Organization

Important Dates

Lindsey Graham For Senate

e Date of Registration

February 5, 2001

e Audit Coverage

January 1, 2001 - December 31, 2002

Headquarters

Seneca, South Carolina

Bank Information

e Bank Depositories

4

e Bank Accounts

2 Checking, 2 Media and 2 Investment
Accounts

Treasurer

e Treasurer When Audit Was Conducted Neil Byerley

¢ Treasurer During Period Covered by Audit | Neil Byerley

Management Information

e Attended FEC Campaign Finance Seminar | Yes

e Used Commonly Available Campaign Yes
Management Software Package

e¢ Who Handled Accounting and Paid Staff

Recordkeeping Tasks

Overview of Financial Activity

(Audited Amounts)
Cash on hand @ January 1, 2001 $0
o From Individuals 4,007,523
o From Political Committees 1,680,296
o_ Transfers from Authorized Committees 545,141
o Other Receipts 69,045
Total Receipts $ 6,302,005
o Operating Expenditures 6,168,653
o Other Disbursements 93,180
Total Disbursements $ 6,261,833
Cash on hand @ December 31, 2002 $ 40,172



Legal Standard

Required Information for Transfers from Authorized Committees. For each
itemized transfer from an authorized committee, the committee must provide the
following information:

¢ The committee’s full name and address (including zip code);

© The date of receipt (the date the committee received the contribution);

¢ The amount of the contribution; and

¢ The election cycle-to-date total of all transfers from the same committee. 11 CFR

§§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(C).

No Limits on Transfers between a Candidate’s Previous Federal Campaign
Committee and His or Her Current Federal Campaign Committee. Transfers of
funds between a candidate’s previous Federal campaign committee and his or her current
Federal campaign committee are unlimited, provided that the candidate is not a candidate
for more than one Federal office at the same time, and provided that the funds transferred
are not composed of contributions that would be in violation of the Act. 11 CFR
§110.3(a)(4).

Facts and Analysis

The review of transfers from authorized committees identified eight transfers totaling
$510,839 that were not adequately disclosed. For all eight of these items, the name of the
transferring committee was disclosed as Lindsey Graham for Senate instead of the actual
committees that made the transfers. Five of the ei ight transfers received were from the
House Committee. In addition to the disclosure of the incorrect names, three of the
House Committee transfers were disclosed with the incorrect amounts, causing the 2001
receipts to be overstated by $42,251. See Finding 1. The other three transfers were from
authorized joint fundraising committees. One of these transfers was also disclosed with
the incorrect amount.

At the exit conference, the Audit staff advised the LGFS representative of these
matters and provided a schedule detailing the errors. The representative stated that
amendments would be filed to correct the matter.

Interim Audit Report Recommendation and Committee
Response

The Audit staff recommended that LGFS file amended Schedules A to correct the
disclosure of the transactions noted above. In response LGFS filed amended
Schedules A, albeit untimely, to correct this matter.



Part IV
Findings and Recommendations

| Finding 1. Misstatement of Financial Activity |

Summary

LGFS had misstatements of reported activity in 2001 and 2002. In 2001, receipts and the
ending cash balance were overstated and disbursements were understated. In 2002,
misstated activity included an overstatement of the ending cash balance. In response to
the interim audit report, LGFS filed amended reports that corrected the misstatement of
reported activity.

Legal Standard

Contents of Reports. Each report must disclose:

¢ The amount of cash on hand at the beginning and end of the reporting period;

¢ The total amount of receipts for the reporting period and for the calendar year; and

¢ The total amount of disbursements for the reporting period and for the calendar year.
2 U.S.C. §434(b)(1), (2) and (4).

Background

On November 7, 2000, the Candidate was elected to the U.S. House of Representatives
from the state of South Carolina, Third Congressional District. The Candidate’s principal
campaign committee was the Committee to Elect Lindsey Graham (the House
Committee). In 2002 the Candidate only sought election to the U.S. Senate. However,
the House Committee’s checking account remained active through May 31, 2001,
receiving $73,124 in receipts and making $73,124 in disbursements. These 2001
transactions related to LGFS. The receipts and disbursements were disclosed on LGFS’s
disclosure reports. During 2001, LGFS received four transfers from the House
Committee checking account as well as the transfer of the balance of the House
Committee investment account. The amount of the transfers was overstated, adding to
the 2001 misstatement. The over-reporting, along with other disclosure issues relating to
transfers from authorized committees, are addressed in Finding 2.

Facts and Analysis

The Audit staff reconciled reported financial activity to the bank records and determined
that LGFS misstated receipts, disbursements and cash on hand in calendar year 2001.
LGFS also misstated cash on hand in calendar year 2002. The following charts detail the
discrepancies between LGFS’s disclosure reports and bank records.



Part III
Summaries

Findings and Recommendations

Finding 1. Misstatement of Financial Activity

LGFS had misstatements of reported activity in 2001 and 2002. In 2001, receipts and the
ending cash balance were overstated and disbursements were understated. In 2002,
misstated activity included an overstatement of the ending cash balance. In response to
the interim audit report, LGFS filed amended Teports that corrected the misstatement of
reported activity.

(For more detail, see p. 4)

Finding 2. Disclosure of Transfers from Authorized
Committees

The review of all transfers from authorized committees identified eight transfers totaling
$510,839 that were not adequately disclosed. Errors included incorrect names of the
transferring committees and incorrect amounts. In response to the interim audit report,
LGFS filed amended Schedules A to correct this matter.

(For more detail, see p. 6)

Finding 3. Recordkeeping for Disbursements

LGFS lacked documentation, such as invoices, receipted bills or canceled checks, for
approximately 13% of operating expenditures tested in our sample. In response to the
interim audit report, LGFS provided documentation to correct this matter.

(For more detail, see p. 8)



Comparison of Disclosure Reports and Bank Records

2002 Campaign Activity
Reported | Bank Records Discrepancy

Opening Cash Balance $2,077,185 $1,913,080 $164,105
@ 1/1/02 Overstatement
Receipts $3,241,291 $3,302,777 $61,486
Understatement
Disbursements $5,194,484 $5,175,685 $18,799
Overstatement
Ending Cash Balance @ $123,992 $40,172 $83,820
12/3/102 Overstatement

Explanation of Discrepancies

Closing Cash on Hand:

LGFS overstated the closing cash on hand balance at December 31, 2002 of $40,172 by
$83,820. The misstatement was the result of the beginning cash on hand overstatement
of $164,105 and several reporting discrepancies in receipts and disbursements during the
year.

At the exit conference, the Audit staff informed the LGFS representative of these
misstatements and provided relevant workpapers. The representative stated that
amendments would be filed to correct this matter.

Interim Audit Report Recommendation and Committee
Response

The Audit staff recommended that LGFS file amended reports for each reporting period,
including amended Schedules A and B as appropriate, to correct the misstatements noted
above. In response to the Interim Audit Report, LGFS filed amended reports for 2001
and 2002 to correct its misstatement of financial activity.

Finding 2. Disclosure of Transfers from Authorized
Committees

Summary

The review of all transfers from authorized committees identified eight transfers totaling
$510,839 that were not adequately disclosed. Errors included incorrect names of the
transferring committees and incorrect amounts. In response to the interim audit report,
LGFS filed amended Schedules A to correct this matter.



FEDERAL ELECTION COMMISSION
WASHINGTON. D.C. 20463

June 24, 2004
MEMORANDUM
TO: PRESS OFFICE
FROM: JOSEPH F. STOLTZ J

SUBJECT:

ASSISTANT ST,
AUDIT DIVISION

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
LINDSEY GRAHAM FOR SENATE

Attached please find a copy of the final audit report and related documents on
Lindsey Graham for Senate, which was approved by the Commission on June 14, 2004.

Informational copies of the report have been received by all parties involved and
the report may be released to the public.

Attachment as stated

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


Interim Audit Report Recommendation and Committee
Response

The Audit staff recommended LGFS review its disbursement records and identify
those payments in amounts greater than $200 for which there is no canceled check,
invoice or bill and obtain and submit the Tequired documentation for the Audit staff’s
review. In response to the recommendation, LGFS provided documentation that
Corrected most of the recordkeeping errors.



| Finding 3. Recordkeeping for Disbursements

Summary

LGFS lacked documentation, such as invoices, receipted bills or canceled checks, for
approximately 13% of operating expenditures tested in our sample. In response to the
interim audit report, LGFS provided documentation to correct this matter.

Legal Standard

Required Records for Disbursements. For each disbursement, the treasurer of a

political committee must keep records on the:
e Amount;

Date;

Name and address of the payee’,

Purpose (a brief description of why the disbursement was made—see below); and

If the disbursement was made on behalf of a candidate, the candidate’s name and

the office sought by the candidate.

° If the disbursement was in excess of $200, the records must include a receipt or
invoice from the payee, or a cancelled check or share draft to the payee. If the
disbursement was by credit card, the record must include the monthly statement
or customer receipt and the cancelled check used to pay the credit card bill. 2
U.S.C. §432(c) and 11 CFR $§102.9(b) and 104.3(b)(4)(i).

Preserving Records and Copies of Reports. The treasurer of a political committee must
preserve all records and copies of reports for 3 years after the report is filed. 2 U.S.C.
§432(d).

Facts and Analysis

Based on a sample review of disbursements, LGFS did not maintain a canceled check,
invoice or receipt for approximately 13% of its operating expenditures. The majority
of the errors were either in-kind contributions for which there was no documentation
or items that were only supported by an entry on the bank statements. The items
which were supported only by bank statement entries were not Teported on the LGFS
disclosure reports. See Finding 1.

At the exit conference, the Audit staff advised the LGFS representative of these
matters. The representative stated that documentation would be obtained to correct
this matter.

3 The payee is usually the person providing the goods or services to the committee. In the case of travel
advances, however, the payee is the person receiving the advance. 11 CFR §102.9(b)(2).



Comparison of Disclosure Reports and Bank Records

2001 Campaign Activity
Reported Bank Records | Discrepancy
Opening Cash Balance $0 $0 $0
@ 1/1/01
Receipts $3,096,269 $2,999,228 $97,041
Overstatement
Disbursements $1,019,084 $1,086,148 $67,064
Understatement
Ending Cash Balance @ $2,077,185 $1,913,080 $164,105
12/31/01 Overstatement

Explanation of Discrepancies

Receipts — 2001

The overstatement of receipts was the result of the following:

e Over-reported Transfers from Authorized Committees” - 42,250
¢ Reported March 9 Receipts that were not Deposited. These were - 22,949
disclosed on LGFS’s receipt database, but they could not be traced to the

bank deposits.

¢ Overstated Interest Income - 7,885
¢ Unexplained Differences. Since LGFS did not provide workpapers to - _23,957

demonstrate how it derived its reported amounts, the Audit staff was unable
to explain this discrepancy.
¢ Net Overstatement of 2001 Receipts $97,041

Disbursements — 2001
The understatement of disbursements was the result of the following:
¢ Disbursements not reported

a. 44 items that cleared bank, and were not on the disbursements + 41,388
database

b. 23 items that cleared bank and were on the disbursements + 44,748
database
¢ Fees on credit card contributions not reported. Credit card + 3,350

contributions were shown on LGFS’s bank statements net of

processing fees. The processor provided a listing of and LGFS

reported gross receipts. However, the fees were not reported.

e Reported disbursements that did not clear bank accounts. Most of - 21,938
these items were either voided disbursements or memos for credit card

expenditures that were improperly disclosed as actual disbursements.

e Disbursement amounts disclosed incorrectly (net) - 349
e Unexplained Differences - 135
« Net Understatement of 2001 Disbursements $67,064

? See Finding 2.



Part I
Background

Authority for Audit

This report is based on an audit of Lindsey Graham for Senate (LGFS), 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 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 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 if the reports filed by a particular committee meet the threshold requirements
for substantial compliance with the Act. 2 U.S.C. §438(b).

Scope of Audit

Following Commission approved procedures, the Audit staff evaluated various factors
and as a result, this audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.

The consistency between reported figures and bank records.

The completeness of records.

Other committee operations necessary to the review.

NAW ONE

Changes to the Law

On March 27, 2002, President Bush signed into law the Bipartisan Campaign Reform Act
of 2002 (BCRA). The BCRA contains many substantial and technical changes to the
federal campaign finance law. Most of the changes became effective November 6, 2002.
Except for the period November 7, 2002, through December 31, 2002, the period covered
by this audit pre-dates these changes. Therefore, the statutory and regulatory
requirements cited in this report are primarily those that were in effect prior to November
7, 2002.



Table of Contents

Page

Part I. Background

Authority for Audit 1

Scope of Audit

Changes to the Law 1
Part II. Overview of Campaign

Campaign Organization 2

Overview of Financial Activity 2
Part III. Summaries

Findings and Recommendations 3
Part IV. Findings and Recommendations

Finding 1. Misstatement of Financial Activity 4

Finding 2. Disclosure of Transfers from Authorized Committees 6

8

Finding 3. Recordkeeping for Disbursements


Report of the
Audit Division on

Lindsey Graham For Senate
January 1, 2001 - December 31, 2002

Why the Audit About the Campaign (p. 2)

Was Done Lindsey Graham for Senate is the principal campaign committee
Federal law permits the for Lindsey Graham, Republican candidate for the U.S. Senate
Commission to conduct from the state of South Carolina and is headquartered in Seneca,
audits and field SC. For more information, see chart on the Campaign
investigations of any Organization, p.2.

political committee that is Financial Activity (p.2)
required to file reports + Receipts

under the Federal © From Individuals $ 4,007,523
Election Campaign Act o From Political Committees 1,680,296
(the Act). The o Transfers from Authorized Committees 545,141
Commission generally o Other Receipts 69,045
conducts such audits o Total Receipts $ 6,302,005

when a committee

appears not to have met + Disbursements

the threshold o Operating Expenditures $ 6,168,653
requirements for o All Other Disbursements 93,180
o Total Disbursements $ 6,261,833

substantial compliance
with the Act.' The audit
determines whether the

committee complied with Findings and Recommendations (p. 3)
the limitations, * Misstatement of Financial Activity (Finding 1)

prohibitions and ¢ Disclosure of Transfers from Authorized Committees
disclosure requirements (Finding 2)

of the Act. e Recordkeeping for Disbursements (Finding 3)
Future Action

The Commission may

initiate an enforcement

action, at a later time,

with respect to any of the

matters discussed in this

report.

" 2U.S.C. §438(b).