FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

February 25, 2002

MEMORANDUM

TO:

FROM:

SUBJECT:

RON M. HARRIS

PRESS OFFICER

PRESS OFFICE

JOSEPH H. STOLTZ~·'it

ASSISTANT STAFF D CTOR

AUDIT DIVISION .

PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON

THE SOUTH CAROLINA REPUBLICAN PARTY

Attached please find a copy ofthe final audit report and related documents on the

South Carolina Republican Party that was approved by the Commission on February 14,

2002.

All parties involved have received infonnatiorial copies ofthe report and the

report may be released to the public on February 25,2002.

Attachment as stated

cc: Office ofGeneral Counsel

Office ofPublic Disclosure

Reports Analysis Division

FEe Library
REPORT OF THE AUDIT DIVISION

ON THE

SOUTH CAROLINA REPUBLICAN

PARTY

Approved February 14, 2002

FEDERAL ELECTION COMMISSION

999 E STREET, N.W.

WASHINGTON, D.C.
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

REPORT OF THE AUDIT DIVISION

ON THE

SOUTH CAROLINA REPUBLICAN PARTY

EXECUTIVE SUMMARY

A99-61

The South Carolina Republican Party (SCRP) registered with the Commission on

February 21, 1976 and maintains its headquarters in Columbia, South Carolina. The Treasurer

during the period covered by the audit was Mr. John Camp, who continues to serve in that

capacity. 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 findings summarized below were

presented to the SCRP at the completion offieldwork on September 29, 2000 and later in the

interim audit report. SCRP's responses to the findings are contained in the audit report. The

SCRP expended in excess of $3 million on various types ofmedia which included ads that

criticized the Democratic candidates for U.S. Senate and House ofRepresentatives in the 1998

election. These expenditures were paid with a combination offederal and non-federal funds

using the ballot composition ratio applicable to administrative costs and the cost of generic

voter drives. The Commission did not consider in the context ofthe audit whether the costs

were contributions to or coordinated expenditures on behalf ofthe Republican candidates.

RECEIPT OF CONTRIBUTIONS IN CONNECTION WITH FEDERAL ELECTIONS - 11 CFR

§§102.5(a) and 110.1 1(a)(l)(iv). SCRP received contributions in amounts varying from

$10,000 to $25,000 that were "split-deposited" with $5,000 deposited to the federal account and

the balance deposited to the non-federal account. These contributions totaled $120,000. The

checks were all made payable to "Victory 98" but did not contain any designation for either the

federal or non-federal account. In response to the interim audit report, the SCRP provided

copies ofsome deposit slips and noted that it is unable to show that these funds were raised in

accordance with 11 CFR §102.5(a)(2). The response also describes corrective measures taken

by the SCRF.

REpORTING OF DEBTS AND OBLIGATIONS - 2 U.S.C. §434(b)(8) and 11 CFR §104.11.

It was determined that over the course offive reporting periods there were outstanding

obligations to three vendors ($276,540) that should have been disclosed by the SCRF. In its

response to the interim audit report, the SCRP filed amended schedules disclosing the· debts and

described corrective measures taken.

Page 1 of23, Approved February 14,2002
MISSTATEMENT OF FINANCIAL ACTIVITY - 2 U.S.C. §§434(b)(1), (2) and (4)~ A

reconciliation ofreported financial activity to bank records for calendar year 1998 indicated that

receipts, disbursements and cash on hand balances had been misstated. In its response to.the

interim audit report, the SCRP filed amended schedules to correct the misstatements and also

described corrective measures taken.

NON-FEDERAL FuNDING OF FEDERAL ACTIVITY - 11 CFR §§102.5(a)(I)(i); 106.5(e),

(f) and (g)(l); and, 104.10(b)(4). To ·assess non-federal funding offederal activity, the Audit

staffreviewed disbursements to vendors who received substantial payments from both the

SCRP federal and non-federal accounts, all other disbursements made from both non-federal

accounts, and copies oftelevision and radio spots provided by SCRP. Based on these reviews,

it was determined that, at the time ofthe interim audit report, the· non-federal accounts had over

funded federal activity by $424,870. Contributing significantly to this result was $500,000 in

payments to the Altus Group, a media placement firm, which lacked complete supporting

documentation. Further, certain payments made directly from the SCRP's non-federal accounts

should have been disbursed from, and disclosed by, the federal account. In its response to the

interim audit report, the SCRP submitted amendments disclosing payments made from the non-.

federal accounts and provided some additional documentation. As a result, the amount the non- .

federal accounts have potentially over funded allocable expenses was reduced to $358,591.

Page 2 of23,Approved February 14,2002
A99-61

FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

REPORT OF THE AUDITDIVISION

ON THE

SOUTH CAROLINA REPUBLICANPARTY

I. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit ofthe South Carolina Republican Party

(SCRP), undertaken by the Audit Division ofthe Federal Election Commission in

accordance with the provisions ofthe Federal Election Campaign Act of 1971, as

amended (the Act). The audit was conducted pursuant to Section 438(b) ofTitle 2 ofthe

United States Code, which states, in part, that the Commission may conduct audits and

field investigations of any political committee required to file a report under section 434

ofthis title. Prior to conducting any audit under this subsection, the Commission shall

perform an internal review ofreports filed by selected committees to determine ifthe

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, 1997, through December 31,

1998. During this period, the SCRP reported a beginning cash balance of$14,644; total

receipts of$3,611,709; total disbursements of$3,589,072; and a closing cash balance of

$37,281.

C. COMMITTEE ORGANIZATION

The SCRP registered with the Commission on February 21, 1976 and

maintains its headquarters in Columbia, South Carolina. The Treasurer during the period

covered by the audit was Mr. John Camp, who continues to serve in that capacity.

To manage its federal financial activity, the SCRP used one bank account

to make approximately 1,100 disbursements. ·Receipts were composed of contributions

from individuals ($507,781); contributions from other political committees and transfers

from affiliated and other party committees ($560,247); offsets to operating expenditures

received ($90,811); interest income ($55,066); and, transfers from its non-federal

Page 3 of23, Approved February 14,2002
2

accounts ($2,730,666).1 During the audit period, the SCRP also utilized two non-federal

accounts and, based upon available documentation, disbursements were made totaling

$4,480,553. ( ..

D. AUDIT SCOPE AND PROCEDURES

The audit included testing ofthe following general categories:

1. the receipt of contributions or loans in excess ofthe statutory limitations; .

2. the receipt of contributions from prohibited sources, such as those from

corporations or labor organizations;

3.

4.

proper disclosure of contributions from individuals, political coriunittees

and other entities, to include the itemization of contributions when

required, as well as, the completeness and accuracy ofthe infonnation

disclosed (See Finding II.A.);

proper disclosure of disbursements including the itemization of

disbursements when required, as well as, the completeness and accuracy of

., the information disclosed;

5. proper'disclosure of debts'andobligations'(See Finding II.B'.);

6. the accuracy oftotal reported receipts, disbursements and cash balances as

compared to bank records (See Finding IT.C.);

7. adequate recordkeeping for trans'actions;

8. proper disclosure ofthe allocation of costs associated with administrative

expenses and activities conducted jointly on behalf offederal and nonfederal elections and candidates (See Finding II.D.); and,

9. other audit procedures that were deemed necessary in the situation. '

The SCRP expended in excess of $3 million on various types ofmedia

which included ads that criticized the Democratic candidates for U.S. Senate and House

ofRepresentatives, in the 1998 election. These expenditures were paid with a

combination offederal and non-federal funds using the ballot composition ratio

applicable to administrative costs and the cost of generic voter drives. The Commission

did not consider in the context ofthe audit whether the costs were contributions to or

coordinated expenditures2on behalf ofthe Republican candidates. .

.2

These categories'ofreceipts total $3,934,571 or about $322,862 more than r~ported receipts

($3,611,709). See Finding II.C., Misstatement ofFinancial Activity. " . (, ,

Schedules F filed as part of amended reports disclosed coordinated expenditures totaling $2,070,806.87

attributed to the following candidates: Inglis for Senate, Beasley for Governor and Spence for Congress.

Subsequent amendments reversed this disclosure of coordinated activity.

Page 4 of23, Approved' February 14, 2002
3

A matter noted during the audit is pending before the Commission in

another context. When the Commission concludes its consideration ofthis matter,

information will be made public in accordance with Commission procedures.

Unless specifically discussed belo'Y, no material non-compliance with

statutory or regulatory requirements was detected. It should be noted that the

Commission may pursue further any ofthe matters discussed in this report in an

enforcement action.

II. AUDIT FINDINGS AND RECOMMENDATIONS

A. RECEIPT OF CONTRIBUTIONS IN CONNECTION WITH FEDERAL

ELECTIONS

Section 102.5(a)(I) ofthe Code ofFederal Regulations states, in part, that

organizations, including party committees, that finance political activity in connection

with both federal and non-federal elections and which qualify as political committees

shall either: establish a political committee that receives only contributions subject to the

prohibitions and limitations ofthe Act regardless ifsuch contributions are,used in

connection with federal or non-federal elections; or, as was done by the SCRP, establish a

separate federal account. Such account shall be treated as a separate federal political

committee, which shall comply with the requirements ofthe Act and only funds subject to

the Act's prohibitions and limitations shall be deposited in the separate federal account.

Sections 102.5(a)(2)(i), (ii) and (iii) ofTitle 11 ofthe Code ofFederal

Regulations state that only contributions that are designated for the federal account; that

result from a solicitation which expressly states that the contribution will be used in

connection with a federal election; and, contributIons from contributors who are

infoImed that all contributions are subject to the prohibitions and limitations ofthe Act

may be deposited to a federal account established under 11 CFR 102.5(a)(I)(i). Further,

11 CFR 102.5(a)(3) provides, in relevant part, that any party committee solicitations that

make reference to a federal candidate shall be presumed to be for the purpose of

influencing a federal election, and contributions resulting from that solicitation shall be

subject to the prohibitions and limitations ofthe Act.

Section 110.11(a)(1)(iv) ofTitle 11 ofthe Code ofFederal Regulations

states, in relevant part, that whenever a person solicits any contribution through any

broadcasting station,newspaper, magazine, outdoor advertising facility, poster, yard

.sign, direct mailing, or any other form of general public political advertising, a

disclaimer meeting the requirements ofparagraphs (a)(I)(i), (ii), (iii), (iv) or (a)(2) of

this section shall appear and be presented in a clear and conspicuous manner to give the

reader, observer or listener adequate notice ofthe identity ofthe persons who paid for,

and where required, who authorized the communication. Further, 11 CFR 110.11

(a)(I)(iv) states that for solicitations directed to the general public on behalf of a political

committee which is not an authorized committee of a candidate, such solicitation shall

clearly state the full name ofthe person who paid for the communication.

Page 5 of23, Approved February 14,2002
4

.. The Audit staffnoted that the SCRP received contributions from nine

individuals in amounts varying from $10,000 to $25,000 that were ~'split-deposited" with

$5,000 deposited to the SCRP's federal account and the balance deposited to the nonfederal account. These contributions totaled $120,000. For example, a $25,000

contributor check would be "split-deposited" with $5,000 deposited to the federal account

and $20,000 to the non-federal account. Procedurally, this would require the $25,000

check to be listed on a deposit slip at $25,000 and an indication made that $20,000 was to

be received in cash, for a "net" deposit of $5,000 to the federal account. The $20,000 in

"cash" received is then deposited to the non-federal account. Depositslips relative to

these transactions were not available for review. Notations on·photocopies ofthe

contributor checks maintained by the SCRP indicated, in a couple ofinstances, that the

$5,000 was being "transferred" to the federal account. The checks were all made payable

to "Victory 98" but none contained any designation for either the federal or non-federal

account. The SCRP's bank statements show two deposits, one in the federal account and

one in the non-federal account, but no transfer between the two. The portions splitdeposite~ to the non-federal account totaled $75,000.

A copy ofthe Victory 98 solicitation material was not available for review.

Further, copies ofmost ofthe SCRP's solicitations were not made available. The few

examples examined do not specify what account the funds are being solicited for; rather,

they are generic requests for contributions to the party. Ofthe fundraising appeals

identified and associated·with contributions deposited into the Federal accoUnt, the SCRP

provided sampies, or partial samples, for only eighteen. Four ofthese contained a

disclaimer indicating who had paid for the solicitation, as required. Further, seven ofthe

eighteen solicitations did not mention that contributions will be used in connection with

federal elections or contain a disclaimer noting that only contributions subject to the

prohibitions and limitations ofthe Act are acceptable.. In fact, some ofthe solicitations

state specifically that corporate contributions are permitted.

. In view ofthe amounts ofthese contributions, the nature ofthe

solicitations reviewed and the Audit staffs inability to associate these contributions with

a specific solicitation for federal elections, these contributions do not appear to have been

properly deposited under 11 CFR §102.5(a)(2).

The Audit staff discussed these matters with SCRP representatives and

provided a schedule detailing the above-noted contributions.

In the interim·audit report, the Audit staffrecommended that theSCRP

provide documentation indicating the $45,000 in receipts were properly deposited in the

federal account. In addition, the SCRP was requested to provide additional comments or

explanations with respect to the $75,000 in "split-deposited" funds being subject to the

presumption at 11.CFR §102.5(a)(3) and to provide copies ofthe related deposit slips.

The Audit stafffurther recommended that the SCRP provide documentation to show that

procedures now include the use ofrequired notices on solicitation devices utilized in

raising funds solely for the federal account orjointly with the non-federal account.

Page 6 of23, Approved February 14, 2002
5

In response to the interim audit report, the SCRP provided copies of

deposit slips for $40,000 ofthe $45,000 deposited to the federal account, as well as one

deposit slip for $5,000 ofthe $75,000 deposited to the non-federal account. SCRP's

narrative response is prefaced by noting that the interim audit report does not include any

findings ofintentional, willful or deliberate non-compliance with the Act and states any .

instances ofnon-compliance occurred solely as the result ofinexperience, inadvertent

errors, or clerical mistakes on the part ofSCRP staffmembers in place during the relevant

time period. The response notes however, that SCRP is unable to show that the funds

addressed above were raised in accordance with 11 CFR §102.5(a)(2) because such

documentation does not exist. The response goes on to state that as a result of a mere

oversight, rather than willful disregard for the requirements ofthe Act, the solicitations

used to raise the contributions at issue simply did not include all ofthe information

required by this provision. Further, there have been absolutely no allegations or

inferences that the SCRP misled these contributors or in any way obtained these

contributions under false pretenses.

In conclusion, the response describes corrective measures taken. SCRP's

Executive Director will designate an existing staffmember as the FEC compliance

officer. All SCRP staffmembers involved with soliciting contributions will receive

instructions regarding the required notices on solicitation devices. Further, all solicitation

.:devices will be reviewed by the compliance officer or the Executive Director prior to

being sent out to ensure. the devices contain appropriate information. In addition, the

. ··~SCRP will provide any private vendors that may be used to commercially create

solicitation materials with infonnation regarding the notices required under the Act and

..such devices will be reviewed by SCRP staff prior to being used.

B. REpORTING OF DEBTS AND OBLIGATIONS

Section 434(b)(8) ofTitle 2 ofthe United States Code states that each

report shall disclose the amount and nature of outstanding debts and obligations owed by

a political committee.

Section 104.11 ofTitle 11 ofthe Code ofFederal Regulations states, in

part, that debts and obligations owed by a political committee which remain outstanding

. shall be continuously reported until extinguished. In addition, a debt, obligation, or

written promise to make an expenditure, the amount ofwhich is $500 or less, shall be

reported as ofthe time the payment is made or no later than 60 days after such obligation

is incurred, whichever comes first. Any debt or obligation, the amount ofwhich is over

$500, shall be reported as ofthe date on which the debt or obligation is incurred.

Disclosure reports filed by the SCRP did not disclose that it owed any

debts and obligations. Based on available invoices and disbursement records, it was

determined that over the course offive reporting periods there were outstanding

obligations to three vendors that should have been disclosed on Schedule D. The

outstanding balances for these obligations, for the five reporting periods, totaled

$276,540. As ofthe end ofthe audit period (12/31/98), the outstanding debts which

should have been disclosed on the 1998 Year End report included: $30,407 owed to

Page 7 of23, Approved February 14,2002
6.

Strategic Telecommunications, a provider offundraising services; $47,658 owed to

. Conquest Communications, a provider oftelemarketing services; and $19,372 owed to

Stevens, Reed & Curcio, a provider ofmedia services.

The SCRP's representative was informed ofthe unreported debt

subsequent to the exit 'conference and provided schedules detailing these debts. At that

time, he offered no response. .

In the interim audit report, the Audit staffrecommended that SCRP file

Schedules D (by reporting period)to disclose the debts and obligations addressed above.

It was further recommended that the SCRP provide a written description ofsystem

changes it has implemented to enable it to identify and report debts and obligations..

In response to the interim audit report, theSCRP filed the requested

amended Schedules D. In addition, the SCRP's response notes the compliance officer

will be responsible for familiarizing himself or herselfwith the debt reporting

requirements ofthe Act.

C. MISSTATEMENT OF FINANCIAL ACTIVITY

Sections 434(b)(I),(2) and (4) ofTitle 2 ofthe United States Code state,

in relevant part, that each report shall disclose the amount of cash ·on hand at the

beginninKof each reporting period, the total amount of·all'receipts, ·and the total amount

of all disbursementsJor the reporting period and calendar year.

The Audit staffs reconciliation ofthe SCRP's reported financial activity

to its bank activity, for the periodJanuary 1, 1998".through·December 31, 1998, revealed

that it had misstated its receipts, disbursements and cash on hand balances~ The SCRP

did not provide workpapers detailing how the dollar amounts shown on its disclosure

reports were calculated.

The SCRP reported total receipts of$3,158,629, an understatement of

. $335,119. Correct reportable receipts for 1998 were $3,493,748. The understatement

resulted from the failure to report a transfer from its non-federal account ($231,000); the

. failure to report a refund £rom a media vendor ($60,000); the under reporting of a transfer

from the non-federal account ($16,000); and an unexplained difference that understated

receipts by $28,119. .

Total reported disbursements were $3,133,696. The SCRP should have'

reported total disbursements of $3,480,944. Therefore, disbursements were understated

by $347,248.· The understatement stemmed mainly from the SCRP's: failure to report

six disbursements totaling $510,659; the reporting of a disbursement in the amount of

$148,332 made from a noli-federal account; and an unexplained overstatement of

$15,078.

Page 8 of23~ Approved February 14,2002
7

The SCRP reported ending cash on hand of $37,281 on December 31,

1998, an overstatement of$21 ,624. The correct cash balance was determined to be

$15,658. The overstatement resulted from the misstatements detailed above.

At the Exit Conference, SCRP representatives were provided with

documentation detailing the misstatements. They agreed to correct the misstatements.

In the interim audit report, the Audit staffrecommended that SCRP file a

comprehensive amended report for calendar 1998, which included Summary and Detailed

Summary Pages to correctly disclose its reported activity, as well as amended Schedules

A, Band/or H4, by report period, to correct the misstatements noted above.

In response to the interim audit report, the SCRP filed amended schedules

to correct the misstatements for 1998. The response also notes that the SCRP's

compliance officer will have the additional duty and responsibility to keep a record of

receipts and expenditures to ensure future reports offinancial activity are accurately and

. properly filed.

D. NON-FEDERAL FUNDING OF FEDERAL ACTIVITY

Section 102.5(a)(I)(i) ofTitle 11 ofthe Code ofFederal Regulations

states, in relevant part, that each organization, including a party committee, which

finances political activity in connection with both federal and non-federal elections shall

establish a separate federal account in a depository in accordance with II CFR part 103.

Such account shall be treated as a separate federal political committee, which shall

.comply with the requirements ofthe Act. Only funds subject to the prohibitions and

limitations ofthe Act shall be deposited in such separate federal account. All

disbursements, contributions, expenditures and transfers by the committee in connection

with any federal election shall be made from its federal account. No transfers may be

made to such federal account from any other account(s) maintained by such organization

for the purpose offinancing activity in connection with non-federal elections, except as

provided in 11 CFR 106.5(g). .

Section 106.5(g)(I) (i) and (ii) (A) ofTitle II ofthe Code ofFederal

Regulations states, in part, that committees that have established separate federal and

non-federal accounts under II CFR 102.5(a)(I)(i) or (b)(I)(i) shall pay the expenses of

joint federal and non-federal activities described in·paragraph (a)(2) ofthis section

according to either paragraph (g)(I)(i) or (ii), as follows: the committee shall pay the

entire amount of an allocable expenses from its federal account and shall transfer funds

from its non-federal account to its federal account solely to cover the non-federal share of

that allocable expense, or the committee shall establish a separate allocation account into

which funds from its federal and non-federal accounts shall be deposited solely for the

purpose of paying the allocable expenses ofjoint federal and non-federal activities. Once

a committee has established a separate allocation account for this purpose, all allocable

expenses shall be paid from that account for as long as the account is maintained.

Page 9 of23, Approved February 14,2002
8

Section 106.5(e) ofTitle 11 ofthe Code ofFedetal Regulations provides,

in part, that each state or local party committee shall allocate the costs of activities

exempt from the definition of contributiono~expenditure, when conducted in

conjunction with non-federal election activities, according to the proportion oftime or

space devoted in a communication. Under this method, the committee shall allocate

expenses of a particular communication based on the ratio ofthe portion ofthe

communication devoted to federal candidates or elections as compared to the entire

communication.

Section I06.5(f) ofTitle 11 ofthe Code ofFederal Regulations provides,

in relevant part, that if a committee, through.a joint activity collects federal and non- .

federal funds, it shall allocate its direct costs offundraising according on the funds

received method. Under this method, the committee shall allocate its fundraising costs

based on the ratio offunds received into its federal account to its total receipts from each

fundraising program or event. This ratio shall be estimatedprior to each such program or

event based on the committee's reasonable prediction ofits federal and non-federal

revenue from that program or event. No later than the date 60 days after each fundraising

program or event, the committee shall adjust the allocation ratio to reflect the actual ratio

offunds received and, as necessary, transfer funds to adjust for any overpayment or

underpayment, by either the federal or oon-federal account.

Section 104.10(b)(4) ofTitle 11 ofthe Code ofFederal Regulations states

that a political committee that pays allocable expenses in accordance ~ith 11 CFR

106.5(g) or 106.6(e) shall also report each disbursement from its federal account or its .

separate allocation account in payment for joint federal and non-federal expense or

activity. In the report covering the period in which the disbursement occurred, the

committee shall state the full name and address of each person. to whom the disbursement

was made, and the date, amount and purpose of each such disbursement. Ifthe

disbursement includes paymentfor the allocable costs ofmore than one activity, the

committee shall itemize the disbursement, showing the amounts designated for

administrative expenses and generic voter drives, and for each fundraising program or

exempt activity, as described in 11 CFR 106.5(a)(2) or 106.6(b). The committee shall

also report the total amount expended by the committee that year, to date, for each

category of activity.

The SCRP maintained one federal and two non-federal accounts, an .

"operating account" and a "state account". SCRP utilized the operating account as an

administrative account, whose activity was not disclosed on either State or Federal

disclosure reports? Under this account structure, the regulations require that all allocable

activity be paid initially from a federal account. Reimbursements to the federal account

maybe made from non~federal accounts, such as the SCRP's state and operating

accounts, solely to cover the non-federal share ofthe allocable expense. The Auditstaffs

review of disbursements included separate reviews of vendors who received substantial

payments from both the SCRP federal and·non-federal accounts, and a review of all other

3 According to the South Carolina State Ethics Commission, state law permits the establislunent of

an account for administrative expenses. The establishment ofthis account allowed the acceptance

of contributions from an individual in excess ofthe state limitation of $3,500 per election cycle.

Page 10 of23, Approved February 14, 2002
9

disbursements made from both non-federal accounts. In addition, copies oftelevision

and radio spots were provided by SCRP and reviewed by the Audit stafffor content.

The Non-Federal Funding Analysis at Attachment 1 (the Analysis)

presents allocable expenditures reported by the SCRP, transfers made from the nonfederal accounts for allocable expenses, and the results ofthe reviews detailed below. In

the interim audit report, the Analysis indicated that the non-federal accounts appeared to

have over funded allocable expenses by $424,870. Based on documentation received in

response to the interim audit report relative to the Altus Group (see subsection 8. below),

the Analysis was revised and now indicates that the non-federal accounts appear to have

over funded allocable expenses by $358,591.

Further, some paYments made directly from the SCRP.'s non-federal

accounts should have been disbursed from, and disclosed by, the federal account. The

results ofthese reviews are discussed below:

1. Conquest Communications

The review ofpaYments made to Conquest Communications identified six

disbursements totaling $132,011 made from the federal account which

were disclosed as for "telemarketing" on Schedules H4. Invoices and

other documentation, including copies ofsome scripts, indicate these

.,.... paYments were for non-federal activities. Since these payments were for

solely non-federal purposes, the Analysis has been adjusted $-33,003

($132,011 x 25%) to reflect the federal portion ofthese allocable

expenses.

In addition, one paYment from the non-federal account was noted in the

amount of$I,OOO·for the purchase of an ad in a convention program. The

Analysis has been adjusted $250 ($1,000 x .25) to reflect this as an

allocable expense that should have been made from the federal account. .

This disbursement also requires (memo) disclosure on Schedule H4.

2. Stevens, Reed & Curcio

The review of all paYments made to Stevens, Reed & Curcio identified

four disbursements totaling $17,067 made from .the non-federal account.

Ofthis amount, $9,367 was for a radio ad entitled "The Lock". Although

the Audit staffwas able to review copies or tapes ofmuch ofthe media

attributed to this vendor, "The Lock" was not among those reviewed for

content. Those ads reviewed were federal candidate specific, but none

contained an overt advocacy statement. Rather they suggest to the

recipient that they should contact the persons involved and express their

opinion or some equivalent message. Other paYments to Ste:vens, Reed &

Curcio made from the federal account were disclosed on Schedule H4 for

"Issue Advertising". Therefore, the Analysis has been adjusted $4,267

Page 11 of23, Approved February 14,2002
10

($17,067 x:25%) to reflect the federal portion ofthese· allocable expenses.

These disbursements also require (memo) disclosure on Schedule H4.

3.· Ballot Access Payments

On April 9, 1998, the SCRP made a payment of$54,684 from its federal

account to the South Carolina State Election Board. The payment

Tepresented ballot access filing fees collected from various candidates and

deposited into the federal account. The disbursement was disclosed on

Schedule H4 as an allocable expense and reimbursed by the non:"federal

account. This payment is not an allocable expense, but rather a pass

through offunds collected from candidates. No reimbursement from the

non-federal account was appropriate and the Analysis has been adjusted by

$41,013 ($5.4,684 x 75%).

4. Strategic Telecommunications

PaYments to Strategic Telecommunications made from the federal account

were for fundraising services and disclosed on Schedule H4. They were

reimbursed by the non-federal account based on the ballot composition

ratio. Based on the limited records maintained by SCRP to distinguish the

.source ofreceipts, the Audit staff detennined that the correct ratio, using

the funds received method, was 34% federal and 66% non-federal. This

resulted in an adjustment of $-7,273 for those payments disclosed on

Schedule H4 and allocated using the ballot composition ratio. Payments

for fundraising efforts were also made from the non-federal accounts and

totaled $144,652. Those payments should have been made from the

federal account, disclosed on -Schedule H4, and·partially reimbursed from

.the non-federal account. The federal portion ofthese expenses is $49,182

($144,652 x 34%). The Analysis·reflects the $41,909 ($-7,273 + $49,182)

additional Federal portion ofthese expenses~ .

5. Stevens & Schrifer

The review of all payments made to Stevens & Schrifer identified

disbursements totaling $58,395 made from the non-federal account for

media placement. Available documentation indicated the media buys were

for a federal candidate. The copy ofthe ad provided for review was

candidate specific,· but did.not contain an express advocacy statement. The

Analysis has been adjusted'$14,599 ($58,395 x 250/0) to reflect the federal

. portion ofthese allocable expenses. These disbursements also require

(memo) disclosure on Schedule H4.

6. National Media

The review of all payments made to National Media identified three

disbursements totaling $162,715 made from the federal account which

Page 12 of23, Approved February14, 2002
7.

8.

11

were disclosed as for "media services" on Schedules H4. Invoices and

other documentation, including a copy of an ad used by National Media,

indicate these payments were for radio ads on behalfofBeasley for

Governor. Since these payments were for solely non-federal purposes, the

Analysis has been adjusted $-40,679 ($162,715 x 25%) for the federal

portion ofthese allocable expenses.

Payments From the Non-Federal Operating Account (Operating account)

The review of all payments from the Operating account identified

disbursements totaling $578,255, which appear to be either for solely

federal expenditures ($2,874) or apparent, allocable expenses ($575,381)

such as compensation, phone, utilities, rent, office expense, staff expense,

. printing postage, media, events, telemarketing, polls and other

miscellaneous expenses. SCRP provided limited external documentation

supporting these expenditures. SCRP headquarters housed staff and

operations for both federal and non-federal activities. Available

documentation does not indicate that any ofthe payments were for solely

non-federal activities; therefore, they are treated as allocable expenses in

the Analysis. Adjustments were made to the Analysis for the apparent

federal expenditures ($2,874) and for the federal portion ofthe allocable

expenditures ($143,845, or 25%of$575,381). These expenditures also

require (memo) disclosure on Schedule H4.

Altus Group

Two payments, totaling $500,000, made to the Altus Group from the

federal account, were disclosed on Schedules H4, with the purpose noted

as "Issue Advertisement". Although the payments were initially disclosed

as allocable expenditures, subsequent amendments disclosed these

payments as coordinated expenditures on behalfofthe candidates for

Governor and U.S. Senate. The disclosure reports were amended again to

once more reflect these payments as allocable expenditures. Copies ofthe

ads made available to the Audit staff during fieldwork could not be

associated with this vendor. The Audit staffmade repeated verbal and

written requests to the SCRP for invoices relative to Altus Group to allow

us to determine the nature ofthese expenses. Finally, the Commission

issued a subpoena to obtain the necessary documentation.

In response to the subpoena, Altus Group indicated they were only

responsible for the planning and scheduling ofmedia airtime, as well as

the disbursement offunds for the ad placements. The response also

indicated that a firm called IKON was responsible for the videotapes and

their distribution directly to the television stations. IKON representatives

provided a copy of an ad placed, representing it to be, to the best oftheir

knowledge, the only one utilized. It was an ad relating solely to the

Governor's race. In addition, the SCRP staff contacted specific television

Page 13 of23, Approved February 14,2002
12

.·stations identified in Altus Group's subpoena response in order to locate

documentation that establishes what ads were run. Invoices were

submitted from three·stations representing $48,500 of$388,127 in total j...

. placements. These invoices indicated that at least two ads were utilized.

One ad, which pertained to the Governor race, was determined to be solely

non-federal in nature; and, the other ad, although federal candidate

specific, did not contain an express advocacy statement. Copies ofboth

identified ads had previously been made available to the Audit staff..

The Analysis had been previously adjusted $375,000 ($5.00,000 x 75%) to

reflect the expenses as solely federal expenditures. Based on the

documentation provided at the time the interim audit report was prepared,

the Audit staff calculated the non-federal portion ofthe documented media

.placements, as well as a pro-rata portion ofthe associated expenses, such

as commissions, production costs and reimbursed expenses to be $58,969.

Therefore, in the interim audit report, the Analysis had been adjusted

$316,031 ($375,000 - $58,969) to reflect these remaining expenses as

potentially federal expenditures. In the interim audit report, the Audit staff

recommended, in part, that SCRP provide documentation detailing the

nature and purpose ofthe rem~ining disbursements made to Altus Group

toinclude but not be limited to contracts, statements of account, invoices

and copies ofmedia ads.

In response to the interim audit report, SCRP stated it had enclosed

documentation related to the nature and purpose of disbursements made to

the Altus Group. The response acknowledged that two payments, totaling

$500,000, were made to the Altus Group, and notes the funds to effect

'these payments were received from the Republican Governor's

Association (RGA), through the Republican National Committee (RNC) to

be used " ...expressly and solely in support of and on behalf ofBeasley for

. Governor, clearly a non-federal purpose." According to the response,

SCRP served as nothing more than a conduit by which RGA disbursed

$500,000 to the Altus Group. The SCRP response goes on to state that

these disbursements were mistakenly identified on its reports to the FEC

as federal in nature and that, in reality, these expenditures were solely for

Beasley for Governor, a non-federal purpose. The response states that the

SCRP has undertaken efforts to determine to the greatest extent possible

the manner in which these funds were spent, however, as a conduit, it is

not in possession of complete documentation to show this money was

spent on non-federal purposes.

.The response notes that SCRP contacted televisions stations throughout

South Carolina and has located a significant number of advertisement

flight sheets. According to SCRP, the available flight sheets indicate these

were not allocable expenditures, but rather non-federal in nature. SCRP's

response states, "While these flight sheets do not reflect t~e entirety ofthe

Page 14 of23, Approved February 14, 2002
13

advertisements purchased with these funds, they are certainly

representativ~ of all ofthe advertisements. Further, when viewed in

conjunction with the source ofthe funds, they further tend to prove that

such funds were non-allocable." The response states that SCRP has

determined these disbursements should have been properly characterized

as non-federal in nature, and has amended its reports to correct the

reporting ofthese disbursements. In conclusion, the response states that

the Audit staffs analysis should be amended to reflect a reduction in the

over-funded amount by $316,031; thus, the federal account is only over

funded by $108,839. Lacking funds at this time to make such a transfer,

the SCRP will disclose this amount owed on Schedule D until such time as

funds become available to reimburse the non-federal account.

Documentation was not provided to support SCRP's claim that RGA was

the source ofthe funds used to make the ($500,000) payments to the Altus

.Group or that its intent was for it to be used to support Beasley for

Governor. The Audit staffreviewed the placement invoices and station

affidavits provided by SCRP and noted that much ofthe documentation

· had been previously submitted. In addition, much ofthe documentation

was not pertinent to the Altus Group payments, but rather supported media

buys purchased through other media vendors utilized by SCRP. Further,

contrary to the representationsmade in SCRP's response, the

documentation provided to date establishes that the placements made by

the Altus Group involved at least two ads, only one ofwhich was nonfederal in nature.

The additional station affidavits provided also indicated the same two ads

reflected in previously supplied affidavits were utilized. As noted, one ad

.was non-federal in nature and, the other ad, although federal candidate

.specific did not contain an express advocacy statement. Station affidavits

supporting the cost of27% ofmedia ads placed through the Altus Group

are now available. Based on these affidavits, 74% ofthe dollars were for

placement ofthe ad that was non-federal in nature; and, 26% ofthe dollars

· were for placement ofthe ad that was allocable in nature. Further, there

has been no evidence provided relative to this vendor or any other media

vendor suggesting there may have been media that was solely federal in

nature utilized by the SCRP during the audit period.

Based on the additional documentation provided, the Audit staff has

· revised its calculation ofthe non-federal portion ofthe documented media

placements, as well as a pro-rata portion ofthe associated expenses, such

as commissions, production costs and reimbursed expenses to be

$125,249. As a result, the Analysis has been adjusted $249,751 ($375,000

- $125,249) to reflect these remaining expenses as potentially federal

expenditures. .

Page 15 of23, Approved February 14, 2002
14

9. Payments From the Non-Federal State & Local Account (State Account)

The review ofpayments from this non-federal account identified

disbursements totaling $32,972, which appear to be either solely for

federal expenditures ($4,406) or allocable expenses ($32,566) such as

payroll, expense reimbursement, phone, utilities, rent, office expense, staff

expense, printing postage, media, events, telemarketing, polls and

miscellaneous expenses. SCRP headquarters housed staff and operations

for both federal and non-federal activities. Available documentation does

not indicate that any ofthese payments were for solely non-federal

activities; therefore, they are treated as allocable expenses in the Analysis.

Adjustments were made to the Analysis for the apparent federal

expenditures ($4,406) and for the federal portion ofthe allocable

expenditures ($8,142, or 25% of$32,566). These expenditures also

require (memo) disclosure on Schedule H4.

10. Welch, Norman & Coley

All payments to Welch, Norman & Coley were reviewed. Although it

appeared that the services provided were solely fundraising in nature, one

.payment made from the federal account ($8,950) was disclosed on

Schedule H4 and reimbursed by the non-federal account at the ballot ratio.

Based on the limited records maintained by SeRP to distinguish the

source ofreceipts, the Audit staff detennined that the correct ratio, using

the funds received method, should have been 60% federal and 40% nonfederal. The Analysis adjusts for the difference between the $6,713

($8,950 x 75%) originally allocated using the ballot access ratio and the

correct non-federal allocable share of $3,580 ($8,950 x 40%), based on'the

funds received ratio. This results in a net adjustment of$-3,133 ($3,580-

$6,713). For payments from·the non-federal accounts, an adjustment of

$8,186 ($13,643 x 60%) is required; these payments also require (memo)

disclosure on Schedule H4.

11. American Printing

The Audit staffreviewed payments to American Printing and identified the

following: .

a. Disbursements from the federal account totaling $33,741 were reported as

allocable expenses on Schedules H4 and allocated using a ratio of75%

non-federal and 25% federal. Based on the documentation provided by

SCRP, these payments were made for. apparent fundraising expenditures.

Using the funds received method; the Audit staff determined that the ratio

should have been 40% non-federal and 60% federal. The Audit staffs

Analysis has been adjusted $11,809 ($33,741 x 35%) to reflect the correct

federal portion ofthese expenses at the 60.% fundraising ratio rather than

the 25% administrative ratio.

Page 16 of23, Approved February 14,2002
15

b. Disbursements from the federal account totaling $32,864 were made for

solely non-federal purposes and disclosed as allocable expenses on

Schedules H4. Therefore, the Analysis was adjusted $-8,216 ($32,864 x

25%).

c. Disbursements from the non-federal account totaling $3,082, were made

relative to a federal candidate based upon the limited documentation

provided by SCRP. The Audit staffs Analysis has been adjusted to reflect

these as solely federal expenditures.

Disbursements were made from the non-federal account for apparent

fundraising expenses totaling $26,049. Using the fundsreceived method;

the Audit staff determined that the ratio should have been 60% federal and

40% non-federal. The Analysis has been adjusted $15,629 ($26,049 x

60%) to reflect the federal portion ofthese apparent allocable expenses.

A disbursement was made in the amount of $50,440 from the non-federal

account for the printing of an absentee ballot. Utilizing the ratio to allocate

such costs based on time and/or space, the Analysis was adjusted $6,305

($50,440 x 25%).

Disbursements were made from the non-federal account for apparent

allocable expenses, such as business cards and envelopes, totaling $3,431.

The Analysis has been adjusted $858 ($3,431 x 25%) to reflect the federal

portion ofthese allocable expenses.

d.

(.1)

~r

~r

~r'

&111 e. ('\~

CZ)

t"",

0

('\B

(\B

f.

The Analysis was appropriately adjusted for each category of disbursement noted

above, resulting in a net adjustment of $29,467. Further, those payments from the nonfederal account require (memo) disclosure on Schedule H4.

At the exit conference, the Audit staffprovided workpapers detailing the

adjustments noted above to the SCRP representatives. They had no comment at that time.

Subsequent to the exit conference, SCRP submitted additional documentation relative to

American Printing.

In the interim audit report, in addition to the recommendation relative to

the Altus Group, discussed in sub-section 8. above, the Audit staffrecommended that

SCRP:

• Demonstrate that the identified disbursements paid from non-federal

accounts are not expenditures as defined at 11 CFR §100.8(a) or not allocable

expenses pursuant to 11 CFR §106.5(a)(2); or,

• File Schedules H4 (Joint FederallNon-Federal Activity Schedule)

disclosing as memo entries the allocable expenditures paid from the non-federal

accounts; and

Page 17 of23, Approved February 14,2002
16

• -Using funds from its federal account reimburse the non-federal

-account(s) and provide evidence ofsuch reimbursement. Ifthe SCRP lacks the funds

to reimburse the non-federal account(s), then disclose the amount owed on Schedule

D (Debts and Obligations) as a debt, until such time that funds are available to make

the reimbursement.

The Audit stafffurther recommended that SCRPprovide a written

description ofsystem changes it has implemented to ensure all allocable

disbursements are paid from a federal account and that expenditures for fundraising

activities are allocated utilizing the" funds received method.

In response to the interim audit report, SCRP enclosed documentation

relative-to the Altus Group, which is discussed above in Section II.D.8., and

concludesthat it has demonstrated that the reimbursement that should be made to its

non-federal account with funds from its federal account totals no more than $108,839.

The respo·nse also notes thatthe-8CRP currently lacks the funds to reimburse the nonfederal account and, as recommended by the Audit staff, the SCRPwill disclose the

$108,839 as a debt until such time as funds become available to make this

.reimbursement. In addition~ SCRP filed amended (Memo) Schedules H-4 to disclose

those allocable expenses paid from the non-federal account as recommended. The

response also addresses system changes to be implemented by SCRP. The designated

;compliance officer will ensurefuture.compliante by making sure all allocable

disbursements are paid from a federal account and that expenditures for fundraising

activities are allocated using the funds received method. Furthel1Ilore, the compliance

. officer will ensure thatreceipts are .initially depositedin the appropriate accounts

based on the intended purpose ofsuch ·funds. The Executive·Directorwillbe .

responsible for monitoring the compliance officer's work in this area and will, on a

quarterly basis, review the SCRP's financial records to ensure that funds received and

disbursed are properlydoctimented and deposited. Finally, the compliance officer

will review all reports, prior to filing with the FEC, to ensure that receipts and

disbursements are accurately reported.

Based on our review ofthe additional documentation provided relative to

the Altus Group, the Audit staffhas revised the Non-Federal Funding Analysis as .

presented at Attachment 1 ofthe interim audit report. The Analysis now indicates the

non-federal accounts havepotentially over funded allocable expenses by $358,591.

Page 18 of23, Approved February 14,2002
TABLE OF CONTENTS

SOUTH CAROLINA REPUBLICAN PARTY

Page

If''''I~

~,~ Executive Summary 1 ~~r

~r

~jr~ Final Audit Report 3

~n

all Background 3 t~",,!

C)

("'n Findings 5 ('\~

Transmittal to Committee 21

Chronology 23

17

South Carolina Republican Party

Non-Federal Funding Analysis

Attachment 1

Transfers from Non Federal Accounts $ 2,730,666.36

Less: Adjusting Transfers from the (22,588.28)

Federal to the Non-Federal

Less: Non Federal Portion ofReported (2,821,383.24)

Allocable Expenditures1

Net (Underfunding)/Overfunding by tlte (113,305.76)

Non Federal Accounts:

Adjustments:

VENDOR DESCRIPTION Findinl! Index ADJUSTMENT

Conquest Paid from Non-Federal Account Finding I1.D.l. $ 250.00

Paid from Federal Account $ (33,002.69)

Stevens Reed & Curcio Paid from Non-Federal Account Finding II.D.2. $ 4,266.71

Ballot Access Payment Paid from Federal Account, Not Allocable Finding ILD.3. $ 41,013.00

Strategic Telemarketing Paid from Federal Account, adjusted for Finding I1.DA. $ (7,272.71)

Fundraising Ratio

Paid from Non-Federal Account $ 49,181.81

Stevens & Schrifer Paid from Non-Federal Account Finding ILD.5. $ 14,598.75

National Media Paid from Federal Account Finding ILD.6. $ (40,678.75)

Non-Federal Operating Paid from Non-Federal Account Finding I1.D.7. $ 146,720.47

Account

Altus Group Paid from Federal Account Finding ILD.8. $ 249,751.13

Non-Federal State & Local Paid from Non-Federal Account Finding II.D.9. $ 12,547.82

Account

. Welch, Norman & Coley Paid from Federal Account, adjusted for Finding I1.D.I O. $ (3,132.50)

Fundraising Ratio

Paid from Non-Federal Account $ 8,186.09

American Printing Net Paid from Federal & Non-Federal Account Finding ILD.11. $ 29,467.16

Adjusted Amount of Potential Non- $ 358,590.53

Federal OVER Funding of Allocable

Expenses

I This analysis utilizes a ballot composition ratio of 25% federal and 75% non-federal, as determined by the

Audit staff. The SCRP utilized a ratio of28.5% federal and 71.5% non-federal for some reporting periods.

Page 19 of23, Approved February 14, 2002
Page 20 of23,Approved February 14,2002
FEDERAL ELECTION COMMISSION

WASHINGTON, D.C. 20463

February 19,2002

Mr. John Camp, Treasurer

South Carolina Republican Party

1508 Lady Street

Columbia, SC 29201

Dear Mr. Camp:

Attached please find the Final Audit Report on the South Carolina Republican

Party. The Commission approved the report on February 14, 2002.

The Commission approved Final Audit Report will be placed on the public record

on February 25, 2002. Sh~uld you have any questions regarding the public release ofthe

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

Alex Boniewicz ofthe Audit Division at (202) 694-1200 or toll free at (800) 424-9530.

. ~inCereIYi' yjill (,1/c/o··,/' ... JOS~ H. Stoltz

/; Assistant StaffDirector

Audit Division

Attachment as Stated

Page 21 of23, Approved February 14, 2002
Page 22 of23, Approved February 14,2002

.j .
CHRONOLOGY

SOUTH CAROLINA REPUBLICAN PARTY

'''''in

Audit Fieldwork August 21 -

Lib September 29, 2000 ~r

~I"

~,~ Interim Audit Report

(~n to the Committee November 5, 2001

(:/1

!r~\! Response Received to the ffZ11

('\JI Interim Audit Report December 28, 2001

r."n

Final Audit Report Approved February 14,2002

Page 23 of23, Approved February 14, 2002