Part II
Overview of Campaign

Campaign Organization

Important Dates DeMint for Senate Committee, Inc.

e Date of Registration January 31, 2003

e Audit Coverage January 14, 2003 through December 31, 2004
Headquarters Columbia, South Carolina

Bank Information

e Bank Depositories 2

e Bank Accounts 1 Business Checking

2 Money Market Accounts
1 Certificate of Deposit

Treasurer
e Treasurer When Audit Was Conducted Ms. Sunny Philips

e Treasurer During Period Covered by Audit | Mr. Jeffrey Parker 01/31/2003 — 9/23/2004
Mr. Thaddeus Barber 09/24/2004 — 8/04/2005

Management Information
¢ Attended FEC Campaign Finance Seminar | Yes
¢ Used Commonly Available Campaign Yes
Management Software Package
¢ Who Handled Accounting, Recordkeeping | Paid and Volunteer Staff
Tasks and Other Day-to-Day Operations

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ January 14 , 2003 $ LU}
Receipts
o From Individuals $ 6,322,367
o From Political Committees 2,441,988
© Transfers from Affiliated/Other Party Committees 268,827
o Other Receipts 34,064
o_ Total Receipts $ 9,067,246

Disbursements
© Operating Expenditures $9,024,878
© Contribution Refunds 45,500
co Total Disbursements $ 9,070,378

Cash on hand @ December 31, 2004 $ (3,132)

2 DFS bank statements did not show a negative balance because of a large amount of outstanding checks as
of December 31, 2004.


Legal Standard

Last-Minute Contributions (48-Hour Notice). Campaign committees must file special
notices regarding contributions of $1,000 or more received less than 20 days but more
than 48 hours before any election in which the candidate is running. This rule applies to
all types of contributions to any authorized committee of the candidate. 11 CFR

§104.5(f).

Facts and Analysis

The Audit staff reviewed 931 contributions, totaling $1,616,430, which were greater than
or equal to $1,000 and received during the 48-hour notice filing periods of the primary,
run-off, and general elections. It appeared that DFS did not file 48-hour notices for 84
contributions totaling $174,772 ($6,626 for the primary, $123,646 for the run-off, and
$44,500 for the general elections).

At the exit conference, the DFS representative was provided schedules of the 48-hour
notices not filed. The representative stated that these schedules would be reviewed and
any comments or corrections would be submitted in writing. Nothing was received in
response to the exit conference.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that DFS provide:
* Documentation to demonstrate the contributions in question were
properly included in 48-hour notices; or,
« Documentation establishing the contributions were not subject to
48-hour notification; and/or,
e Any written comments it considered relevant.

In response to the interim audit report recommendation, DFS contended that 17
contributions, totaling $59,500, received on June 7 and 8, 2004, the date of the primary
and the preceding day, should be removed from the audit finding because the Candidate
was not a run-off candidate when these contributions were received. Those days were
after the expiration of the primary election 48-hour notice period, after the beginning of
the run-off election 48-hour notice period, but before the run-off was a certainty. DFS
explained that the Candidate was not capable of ascertaining whether there would be a
run-off election and, if there was one, whether he would be participating in the election.
DFS’ response does not address the remaining notices.

The Audit staff acknowledges that a run-off election was not a certainty and, neither was
the Candidate’s participation if it was held. Given the circumstances, it was determined
that the 48 notices were not required for contributions received on the primary date and
the preceding day. Asa result, DFS did not file notices for 67 contributions totaling
$115,272.


Part IV
Findings and Recommendations

[Finding 1. Receipt of Contributions that Exceed Limits _|

Summary
DFS accepted 42 contributions from individuals that exceeded the limit by $68,106. Of

these excessive contributions, $63,106 (93%) was eligible for presumptive redesignation.
The remaining excessive contributions totaling $5,000 exceeded the limit per election and
could not be resolved through redesignation and/or reattribution based upon available
documentation. In response to the interim audit report recommendation, DFS provided
copies of notices sent to contributors that were eligible for presumptive redesignation
and/or reattribution. In addition, DFS provided copies of six refund checks.

Legal Standard
A. Authorized Committee Limits: An authorized committee may not receive more

than a total of $2,000 per election from any one person. Increased contribution limits are
provided for candidates facing self-financed candidates once the self-financed candidates
make expenditures from their personal funds that exceed a specific amount. 2 U.S.C.
§441a(a)(1)(A) and 11 CFR §§110.1(a) and (b) and 110.9(a).

B. Handling Contributions That Appear Excessive. If a committee receives a
contribution that appears to be excessive, the committee must either:
«return the questionable contribution to the donor; or
¢ deposit the contribution into its federal account and keep enough money on
account to cover all potential refunds until the legality of the contribution is
established. 11 CFR §103.3(b)(3) and (4).
The excessive portion may also be redesignated to another election or reattributed to
another contributor as explained below.

C. Redesignation of Excessive Contributions. The committee may ask the contributor
to redesignate the excess portion of the contribution for use in another election.
e The committee must, within 60 days of receipt of the contribution, obtain and
retain a signed redesignation letter which informs the contributor that a refund of

the excessive portion may be requested; or
e refund the excessive amount. 11 CFR §§110.1(b)(5), 110.1(1)(2) and 103.3(b)(3).

Not withstanding the above, when an authorized political committee receives an
excessive contribution from an individual or a non-multi-candidate committee, the
committee may presumptively redesignate the excessive portion to the general election if
the contribution:

e Is made before that candidate’s primary election;

e Is not designated in writing for a particular election;


Part III
Summaries

Findings and Recommendations

Finding 1. Receipt of Contributions that Exceed Limits
DFS accepted 42 contributions from individuals that exceeded the limit by $68,106. Of
these excessive contributions, $63,106 (93%) was eligible for presumptive redesignation.
The remaining excessive contributions totaling $5,000 exceeded the limit per election and
could not be resolved through redesignation and/or reattribution based upon available
documentation. In response to the interim audit report recommendation, DFS provided
copies of notices sent to contributors that were eligible for presumptive redesignation
and/or reattribution. In addition, DFS provided copies of six refund checks. (For more

detail, see page 4.)

Finding 2. Failure to File 48-Hour Notices

It appeared that DFS had not file 48-hour notices for 84 contributions totaling $174,772
prior to the primary, run-off, and general elections. In response to the interim audit report
recommendation, DFS argued that contributions totaling $59,500 received after the end
of the primary 48 hour notice period but before the Candidates participation in the run-off
election was assured, did not require notices. In view the circumstances, it was
determined that 48 hour notices for the referenced period were not required. Therefore,
DFS did not file notices for 67 contributions totaling $115,272. (For more detail, see

page 6.)

Finding 3. Failure to Itemize Contributions from
Individuals

A sample review of contributions from individuals indicated DFS did not itemize
approximately 21% of such receipts as required. In response to the interim audit report
recommendation, DFS filed amended reports correcting the deficiencies.

(For more detail, see page 8.)

Finding 4. Failure to Itemize Other Receipts

DFS failed to itemize $28,676 in interest income and refunds/offsets on Schedule A
(Itemized Receipts) as required. In response to the interim audit report recommendation,
DFS amended its reports to disclose these receipts. (For more detail, see page 9.)

Finding 5. Documentation for Receipts

A sample review of contributions from individuals indicated that 18% of such receipts
were not properly documented. These errors represented contributions in excess of $50
for which a copy of the contributor’s check or other written instrument was not retained.
In response to the interim audit report recommendation, DFS supplied additional
information for credit card contributions received over the Internet that materially
completed the contribution records. (For more detail, see page 9.)


Of these excessive contributions, $63,106 (93%) was eligible for presumptive
redesignation. These could be cured by notifying the contributors of DFS’s action and
offering a refund as provided under 11 CFR §110.1(k)(3)G@i)(B). The remaining
excessive contributions totaling $5,000 exceeded the limit per election cycle and could
not be resolved through redesignation and/or reattribution based upon available
documentation.

At the exit conference, the Audit staff provided the DFS representative with schedules of
the excessive contributions. The representatives stated that they would provide
supporting documents for the excessive contribution during the 10-day response period
provided after the exit conference. No additional documentation was received.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that DFS:

¢ Send notices to those contributors that were eligible for presumptive redesignation
and/or reattributions ($63,106) notifying them of DFS’s action and offering
contributors the option of receiving a refund. DFS was to provide evidence to the
Audit staff that the notices were sent and if any refunds were requested; and

¢ Provide evidence demonstrating that the remaining contributions totaling $5,000 were
not excessive. Absent such evidence, refund $5,000 to the contributors, or the United
States Treasury, and provide evidence of such refunds (copies of the front and back of
negotiated refund checks); or

e If funds were not available to make the necessary refunds, disclose the contributions
requiring refunds on Schedule D (Debt and Obligations) until funds became available
to make such refunds.

In response to the interim audit report recommendation, DFS provided copies of notices
sent to contributors that were eligible for presumptive redesignation and/or reattribution.
DFS also provided copies of three negotiated refund checks ($4,000) and of three refund
checks prepared but not negotiated totaling $4,800. Until copies of the negotiated refund
checks are submitted, the $4,800 is considered unresolved.

| Finding 2. Failure to File 48-Hour Notices

Summary
It appeared that DFS had not file 48-hour notices for 84 contributions totaling $174,772

prior to the primary, run-off, and general elections. In response to the interim audit report
recommendation, DFS argued that contributions totaling $59,500 received after the end
of the primary 48 hour notice period but before the Candidates participation in the run-off
election was assured, did not require notices. In view the circumstances, it was
determined that 48 hour notices for the referenced period were not required. Therefore,
DFS did not file notices for 67 contributions totaling $115,272.1


Report of the Audit Division on

DeMint for Senate Committee, Inc.
January 14, 2003- December 31, 2004

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 any of
the matters discussed in
this report.

About the Campaign (p. 2)

DeMint for Senate Committee, Inc. is the principal campaign
committee for James W. DeMint, Republican candidate for the U.S.
Senate from the state of South Carolina, and is headquartered in
Columbia, SC. For more information, see chart on the Campaign
Organization, p. 2.

Financial Activity (p. 2)
e Receipts

o From Individuals $ 6,322,367
o From Political Committees 2,441,988
o Transfers from A ffiliated/Other 268,827
Party Committees
o Other Receipts 34,064
o Total Receipts $ 9,067,246
e Disbursements
o Operating Expenditures $ 9,024,878
o Contribution Refunds 45,500
o Total Disbursements $ 9,070,378

Findings and Recommendations (p. 3)

¢ Receipt of Contributions that Exceed Limits (Finding 1)
Failure to File 48-Hour Notices (Finding 2)

Failure to Itemize Contributions from Individuals (Finding 3)
Failure to Itemize Other Receipts (Finding 4)

.
e
°
¢ Documentation for Receipts (Finding 5)

' 2US.C. §438(b)


| Finding 4. Failure to Itemize Other Receipts

Summary
DFS failed to itemize $28,676 in interest income and refunds/offsets on Schedule A

(Itemized Receipts) as required. In response to the interim audit report recommendation,
DFS amended its reports to disclose these receipts.

Legal Standard
Itemization of Other Receipts. A committee must discloses, on a separate schedule, the

full name and address of each person who provides any dividend, interest, or other receipt
to the reporting committee in an aggregate value of $200 within the calendar (or election
cycle, in the case of an authorized committee of a candidate for Federal office), together
with the date and amount of any such receipt. 2 U.S.C. §434(b)(3)(G).

Facts and Analysis
DFS received approximately $34,064 in interest and other income during the audit

period, of which, interest and refunds/offsets totaling $28,676 was not itemized on
Schedule A (Itemized Receipts) as required.

This matter was discussed at the exit conference and, subsequently, a listing of the
deficiencies was given to DFS representatives.

Interim Audit Report Recommendation and Committee Response
In response to the interim audit report recommendation, DFS amended its reports to

disclose these receipts.

|Finding 5. Documentation for Receipts

Summary
A sample review of contributions from individuals indicated that 18% of such receipts

were not properly documented. These errors represented contributions in excess of $50
for which a copy of the contributor’s check or other written instrument was not retained.
In response to the interim audit report recommendation, DFS supplied additional
information for credit card contributions received over the Internet that materially
completed the contribution records.

Legal Standard
A. Retention of Check Copies. For contributions in excess of $50, committees must

maintain a photocopy or digital image of the check or written instrument. 11 CFR
§102.9(a)(4).

B. Preserving Documents. Committees must preserve these records for 3 years after a
report is filed. 2 U.S.C. §432(d).


Finding 3. Failure to Itemize Contributions from
Individuals

Summary
A sample review of contributions from individuals indicated DFS did not itemize

approximately 21% of such receipts as required. In response to the interim audit report
recommendation, DFS filed amended reports correcting the deficiencies.

Legal Standard
A. When to Itemize. Authorized candidate committees must itemize any contribution

from an individual if it exceeds $200 per election cycle either by itself or when
aggregated with other contributions from the same contributor; 2 U.S.C. §434(b)(3)(A).

B. Election Cycle. The election cycle begins on the first day following the date of the
previous general election and ends on the date of the next general election. 11 CFR

§100.3(b).

C. Definition of Itemization. Jtemization of contributions received means that the

recipient committee discloses, on a separate schedule, the following information:

e The amount of the contribution;

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

e The full name and address of the contributor;

e In the case of contributions from individual contributors, the contributor’s occupation
and the name of his or her employer; and

e The election cycle-to-date total of all contributions from the same contributor. 11
CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A) and (B).

Facts and Analysis

Based on a sample review of contributions from individuals, the Audit staff determined
that DFS did not itemize approximately 21% of such contributions on Schedules A
(Itemized Receipts) as required. The majority of these errors resulted from DFS’s
inadequate aggregation system. When individual contributions aggregated greater than
$200 for an election cycle, and the contribution was less than $200 per transaction, DFS’s

accounting system failed to itemize the amount.

At the exit conference, the Audit staff presented this matter to DFS representatives who
admitted the errors did in fact exist and had switched to more reliable accounting
software to remedy the situation.

Interim Audit Report Recommendation and Committee Response
In response to the interim audit report recommendation, DFS filed amended reports
correcting the deficiencies detailed above.


¢ Would be excessive if treated as a primary election contribution; and
e As redesignated, does not cause the contributor to exceed any other contribution
limit.

Also, the committee may presumptively redesignate the excessive portion of a general
election contribution back to the primary election if the amount redesignated does not
exceed the committee’s primary net debt position.

The committee is required to notify the contributor in writing of the redesignation within
60 days of the treasurer’s receipt of the contribution and must offer the contributor the
option to receive a refund instead. For this action to be valid, the committee must retain
copies of the notices sent. Presumptive redesignations apply only within the same
election cycle. 11 CFR §110.1(b)(5)(ii)(B) & (C) and (1)(4)qii).

D. Reattribution of Excessive Contributions. When an authorized committee receives
an excessive contribution, the committee may ask the contributor if the contribution was
intended to be a joint contribution from more than one person.
¢ The committee must, within 60 days of receipt of the contribution, obtain and
retain a reattribution letter signed by all contributors; or
«refund the excessive contribution. 11 CFR §§110.1(k)(3), 110.1()(3) and
103.3(b)(3).

Notwithstanding the above, any excessive contribution that was made on a written
instrument that is imprinted with the names of more than one individual may be attributed
among the individuals listed unless instructed otherwise by the contributor(s). The
committee must inform each contributor:

e how the contribution was attributed; and

e the contributor may instead request a refund of the excessive amount. 11 CFR

§110.1(k)(3)(ii)(B).

For this action to be valid, the committee must retain copies of the notices sent. 11 CFR

§110.11)(4)Gi).

E. Refund or Disgorge Questionable Contributions. If the identity of the original
contributor is known, the committee should either refund the funds to the source of the
original contribution or pay the funds to the U.S. Treasury. AO 1996-5.

Facts and Analysis

DFS qualified for increased limits afforded candidates opposing self-financed candidates.
DFS’ limitation was increased threefold ($6,000) on July 1, 2003 and subsequently six
fold ($12,000) on May 6, 2004. The increased limitation period ended on June 8, 2004,

the date of the primary election.

The Audit staff reviewed all contributions from individuals to determine if excessive
contributions were received. The Audit staff identified 42 contributions from individuals
that exceeded the limit by $68,106.


Part I
Background

Authority for Audit

This report is based on an audit of DeMint for Senate Committee, Inc. (DFS), 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

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.

MAWaYN


Table of Contents

Part I. Background
Authority for Audit
Scope of Audit

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Receipt of Contributions that Exceed Limits
Finding 2. Failure to File 48-Hour Notices
Finding 3. Failure to Itemize Contributions from Individuals
Finding 4. Failure to Itemize Other Receipts
Finding 5. Documentation for Receipts

Page

NN

WODMODAA


Report of the Audit
Division on DeMint for Senate
Committee, Inc.

January 14, 2003 - December 31, 2004



10

Facts and Analysis

The Audit staff reviewed contributions from individuals on a sample basis and
determined that almost 18% of the items tested lacked a copy of the contributor’s check
or other written instrument as required for contributions in the amounts greater than $50.
Most of the errors occurred in 2004; about one-third of them in June 2004. Many
appeared to be contributions made by credit card via the Internet but were lacking
documentation from the credit card processor.

The Audit staff discussed this matter with DFS representatives at the exit conference who
indicated they were surprised that some of the contribution documentation could not be

located.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended that DFS provide any additional records that it is able to
locate and provide any other information that it believes relevant.

In response to the audit report recommendation, DFS stated that “while contributions
made via check are organized in chronological order and are readily found, credit card
contributions are located across multiple files and are not as centralized.” While DFS
regrets any difficulties encountered by the Audit staff in finding such documentation, it
believes all records have been maintained and is willing to assist in locating any
particular records the Audit staff would like to review.

In addition, DFS stated that many of these were online credit card contributions and the
supporting documentation would be the vendor source data file. DFS provided a copy of
that data file. The Audit staff acknowledges difficulty in locating credit card documents
in DFS files; however, review of the data submitted supports that an electronic record
was contained in the vendor source data file for many of the credit card contribution
errors noted above. With the submission of the additional data, the contribution records

are materially complete.