FEDERAL ELECTION COMMISSION

WASHINGTON. DC 20463

October 17, 2001

Mr. Barry Widera, Treasurer
Sharpless 2000

P.O. Box 260050

Madison, WI 53726

Dear Mr. Widera:

Attached please find the Final Audit Report on Sharpless 2000. The Commission
approved the report on October 16. 2001

The Commission approved Final Audit Report will be placed on the public record
on October 23, 2001. Should you have any questions regarding the public release of the
report, please contact the Commission's Press Office at (202) 694-1220. Any questions
you have related to matters covered during the audit or in the report should be directed to
Mr. Alex Boniewicz or Mr. Joe Stoltz of the Audit Division at (202) 694-1200 or toll free
at (800) 424-9530.

Sincerely,

Robert. Costa
Deputy Staff Director

Attachment as Stated

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the primary election and $1000 for the general election). An in-depth description of their
system for monitoring excessive contributions was also provided. Further, the response
explained that unless a contributor had exceeded the legal limits for the primary
campaign, or otherwise designated the contribution, Sharpless 2000 attributed the
contribution to the primary cycle up to the date of the primary (September 12, 2000).
After that date, contributions were attributed to the general election. However, the
Candidate goes on to say, “When an individual exceeded their Primary Election
contribution level, we assumed (emphasis added) that the money was designated for the
General Election cycle.”

The Candidate’s response continued by noting that the Regulations at
11 CFR §110.1(b)(2)(i) stated, in part, that “Contributors to candidates are encouraged
(emphasis in original) to designate their contributions in writing for particular
elections...we assumed that it was not necessary to demand that contributors make a clear
election designation on their check. The word ‘encouraged’ suggested that designation
was optional not mandatory.”

The response closed with a request that Sharpless 2000 be allowed to
contact these 41 contributors, explain in writing the situation, and give them the option of
explicitly designating their intent or receiving a check for the amount in dispute.
Sharpless 2000 would then submit amended reports making the appropriate corrections in
the record.

With respect to arguments set forth in its response to the exit conference
presentation of this issue, Sharpless 2000’s analysis is flawed. The contribution
limitation at 2 U.S.C. §441a (a) does not establish an overall limitation of $2,000 for the
primary and general elections combined, but separate $1.000 limitations for each election.
Sharpless 2000 is correct that contributors are encouraged, not required, to designate their
contributions for a specific election and that absent that designation contributions are
attributed to the next election after the date the contribution is made. However, Sharpless
2000 fails to note that, as is explained above, if a contribution that is not specifically
designated for a particular election exceeds the limitation for the next election, the
Commission’s regulations provide very specific procedures, documentation requirements,
and time frames for having the contribution designated to a different election. Sharpless
2000 did not comply with the requirements of those regulations. With respect to the
Candidate’s request that they be allowed to contact the contributors’ to clarify their intent,
the 60-day time frame provided under 11 CFR §103.3(b)(3) for the redesignation or
reattribution of a contribution has past.

The interim audit report recommended that Sharpless 2000 provide
evidence that the contributions in question were not excessive. Absent such evidence, it
was recommended that Sharpless 2000 refund the excessive contributions and provide
evidence of such refunds (i.e. copies of the front and back of the negotiated refund
checks). If fands were not available to make such refunds, Sharpless 2000 was advised to

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To manage its financial activity, Sharpless 2000 maintained one bank
account from which it made approximately 540 disbursements. Into this account
Sharpless 2000 deposited contributions from individuals totaling $490.935, contributions
from political committees and political party committees of $138,625 and offsets of
$3,255. Sharpless 2000 utilized the Commission's electronic filing software to prepare
and file its reports electronically. Accounting, recordkeeping and reporting functions
were performed by campaign staff.

D. AUDIT SCOPE AND PROCEDURES

The audit included testing of the following general categories:

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

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

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

4. proper disclosures of disbursements including the itemization of
disbursements when required, as well as, the completeness and
accuracy of the information disclosed;

proper disclosure of debts and obligations;

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

7. adequate recordkeeping for campaign transactions (See Finding
TL.B.); and

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

Unless specifically discussed below, no material non-compliance was
detected. Sharpless 2000 did not receive canceled checks under its banking
arrangements and did not maintain extemally generated documentation, such as invoices,
bills or receipts, for about 40% of its disbursements (see Finding II.B.). The lack of
these records limited our testing for the proper reporting of debts and obligations and the
adequacy of disclosure of information, such as payee, address and purpose of
disbursements. It should be noted that the Commission may pursue further any of the
matters discussed in this report in an enforcement action.

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FEDERAL ELECTION COMMISSION
WASHINGTON. DC 20465
REPORT OF THE AUDIT DIVISION

ON
SHARPLESS 2000

AOI-11

1. BACKGROUND

A. AUDIT AUTHORITY

This report is based on an audit of Sharpless 2000, undertaken by the
Audit Division of the Federal Election Commission in accordance with the provisions of
the Federal Election Campaign Act of 1971, as amended (the Act). The audit was
conducted pursuant to Section 438(b) of Title 2 of the United States Code, 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 of this title. Prior to conducting any
audit under this subsection, the Commission shall perform an internal review of reports
filed by selected committees to determine if the reports filed by a particular committee
meet the threshold requirements for substantial compliance with the Act.

B. AUDIT COVERAGE

The audit covered the period from September 18, 1999, through December
31, 2000. Sharpless 2000 reported a beginning cash balance of $0, total receipts for the
audit period of $628,144; total disbursements for the audit period of $620,327 and an
ending cash balance of $7,817 on December 31, 2000.

Cc. CAMPAIGN ORGANIZATION

Sharpless 2000 ? registered with the Federal Election Commission on
September 23, 1999 as the principal campaign committee for Mr. John Sharpless (the
Candidate), Republican candidate for the U.S. House of Representatives from the state of
Wisconsin, Second District.’ The Treasurer for Sharpless 2000 during the audit period
was Ms. Mary Ann McCoshen. On April 12, 2001, Mr. Barry Widera became Treasurer
and continues to serve in that capacity. Sharpless 2000 maintains its headquarters in
Madison, WI.

The figures cited in this report are rounded to the nearest dollar

On April 23, 2001, an amended Statement of Organization was filed changing the commuttee’s
name to Friends of John Sharpless

On February 28, 2000, Students for Sharpless University of Wisconsin registered as an authorized
commuttee that was not the principal campaign commutiee for the Candidate. The activity of this
committee was deemed insignificant

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the treasurer of the recipient political committee asks the contributor whether the
contribution is intended to be a joint contribution by more than one person, and informs
the contributor that he or she may request the return of the excessive portion of the
contribution if it is not intended to be a joint contribution, and within sixty days from the
date of the treasurer’s receipt of the contribution, the contributors provide the treasurer
with a written reattribution of the contribution, which is signed by each contributor. and
which indicates the amount to be attributed to each contributor if equal attribution is not
intended.

Section 110.1(b)(5) of Title 11 of the Code of Federal Regulations states,
in relevant part, that the treasurer of an authorized political committee may request a
written redesignation of a contribution by the contributor for a different election if the
contribution exceeds the limitation on contributions set forth in 11 CFR §110.1(b)(1). A
contribution shall be considered to be redesignated for another election if the treasurer of
the recipient authorized political committee requests that the contributor provide a written
redesignation of the contribution and informs the contributor that the contributor may
request the refund of the contribution as an alternative to providing a written
redesignation and within sixty days from the date of the treasurer's receipt of the
contribution, the contributor provides the treasurer with a written redesignation of the
contribution for another election, which is signed by the contributor.

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

A review of contributions from individuals that utilized the receipt
database and copies of contributor checks provided by Sharpless 2000, identified
apparent excessive contributions from 4] individuals. The contributions exceeded the
limitation by $20,056. Sharpless 2000 did not make available reattribution or
redesignation letters for any of the above contributors. The excessive contributions were
not deposited into a separate account, nor have they been refunded. Further, after
November 15, 2000, sufficient funds were not maintained in Sharpless 2000’s bank
account to refund these contributions; the reported cash on hand balance at June 30, 2001
is $471.

At the Exit Conference, the Audit staff provided a schedule of the apparent
excessive contributions. At that time, Sharpless 2000 representatives indicated they were
meticulous in orally informing contributors what the limitations were and what they could
contribute relative to the primary and general elections. However, no written reattribution
or redesignations were obtained from the contributors.

Subsequent to the exit conference, a written response was submitted. The
Candidate stated that the campaign was very careful to keep track of contribution levels
and indicates their major concern was in tracking the “overall” limit of $2,000 ($1000 for

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te

FEDERAL ELECTION COMMISSION

WASHINGTON DC 20464

October 23, 2001

MEMORANDUM

TO: RON M. HARRIS
PRESS OFFICER
PRESS OFFICE

FROM: ROBERT J.COSTA ~ CU
DEPUTY STAFF DIRECTOR
AUDIT DIVISION

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON
SHARPLESS 2000

Attached please find a copy of the final audit report and related documents on
Sharpless 2000 which was approved by the Commission on October 16, 2001.

Informational copies of the report have been received by all parties involved and
the report may be released to the public on October 23, 2001.

Attachment as stated

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


excess of $200. As noted previously, the bank account arrangement did not provide for
the bank to return canceled checks to Sharpless 2000. which contributed significantly to
the problem.

This matter was discussed in detail with representatives of Sharpless 2000
at the exit conference. At that time, the representatives indicated they would review their
records, obtain the necessary documentation and provide it to the Audit staff for review.

In a written response received subsequent to the Exit Conference, the
Candidate stated that a copy of each check for expenditures over $200 (roughly 214
items) has been ordered. His discussions with the bank indicated that they would not be
able to provide these materials until late July or early August. The copies were to be
forwarded when received.

The interim audit report recommended that Sharpless 2000 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 required
documentation for the Audit staff's review.

In response to the interim audit report, Sharpless 2000 provided copies of
cancelled checks, resolving this matter.

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disclose the excessive contributions as debts owed on Schedule D (Debts and
Obligations) and make refunds as funds became available.

In response to the interim audit report, Sharpless 2000 restates the position
presented above. In addition, the response refers to regulations cited in the interim audit
report that call upon the treasurer to act if there is evidence of illegality and contends
there was no such evidence of illegality. Since there was an “unambiguous understanding
between both the recipient and the contributor, there was no reason to believe that a
contributor -- by ignorance or contrivance -- was trying to get away with something.” An
example of an oral exchange with a contributor to clarify a $1,500 contribution is
provided. The response also states that, although they may be wrong in their reading of
the Regulations, in their judgment the Regulations clearly make the response of the
treasurer discretionary. The treasurer is only required to make a good-faith judgment on
whether a particular contribution is illegal and notes this is not the same as a check drawn
on a corporate account. Finally, Sharpless 2000 submits letters from 23 contributors, who
contributed $9,431 in excess of the limitations, which state the contributor’s intention
was to have contributions to the primary in excess of $1,000 and up to $2,000, be
considered contributions to the general.

The regulation that is referred to in the response is 11 CFR 103.3(b). That
regulation deals with two distinct possibilities, contributions that appear to be illegal
(corporate, labor organization, foreign national. or Federal contractor) and those that
exceed the contribution limitations either on their face or when aggregated with other
contributions from the same contributor. Subsection 3 of that regulation deals with
apparent excessive contributions. It does not “make the response of the treasurer
discretionary” but rather refers the reader to 11 CFR 110.1 and 110.2 that provide very
detailed instructions for resolving such contributions. Further, as noted in the interim
audit report, any reattribution to another contributor or redesignation to another election
must occur within 60 days of the receipt of the contribution. The “letters of intent”
submitted with the Sharpless 2000 response were obtained long after that time period had
expired. The Audit staff notes that Sharpless 2000 has neither refunded any of the
excessive contributions nor disclosed them as debts owed on Schedule D (Debts and
Obligations).

B. DISBURSEMENT DOCUMENTATION

Section 432(c)(5) of Title 2 of the United States Code requires that the
treasurer of a political committee shall keep an account of the name and address of every
person to whom any disbursement is made, the date, amount, and purpose of the
disbursement, and the name of the candidate and the office sought by the candidate, if
any, for whom the disbursement was made, including a receipt, invoice, or cancelled
check for each disbursement in excess of $200.

Based on a sample review of disbursements, Sharpless 2000 did not
maintain a canceled check, invoice or bill for a material number of disbursements, in

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Il. AUDIT FINDINGS AND RECOMMENDATIONS

A. RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION

Section 441a(a)(1)(A) of Title 2 of the United States Code states that no
person shall make contributions to any candidate and his authorized political committees
with respect to any election for Federal office which, in the aggregate, exceed $1,000.
Subsection (b) of 11 CFR §110.1 explains that with respect to any election means that if
the contribution is not designated in writing by the contributor for a particular election
then the contribution applies to the next election for that Federal office after the
contribution is made. A contribution is considered made when the contributor
relinquishes control over the contribution by delivering the contribution to the Candidate,
the political committee, or an agent of the committee. A contribution mailed is
considered made on the date of the postmark.

Section 103.3(b)(3) of Title 11 of the Code of Federal Regulations states
that the treasurer shall be responsible for examining all contributions received for
evidence of illegality and for ascertaining whether contributions received, when
aggregated with other contributions from the same contributor, exceed the contribution
limitations of 11 CFR §110.1. If any such contribution is deposited, the treasurer may
request redesignation or reattribution of the contribution by the contributor in accordance
with 11 CFR §§110.1(b) or 110.1(k), as appropriate. If a redesignation or reattribution is
not obtained, the treasurer shall, within sixty days of the treasurer's receipt of the
contribution, refund the contribution to the contributor.

Section 103.3(b)(4) of Title 11 of the Code of Federal Regulations states,
in relevant part, that any contribution which appears to be illegal under
11 CFR §103.3(b)(3), and which is deposited into a campaign depository shall not be
used for any disbursements by the political committee until the contribution has been
determined to be legal. The political committee must either establish a separate account
in a campaign depository for such contributions or maintain sufficient funds to make all
such refunds.

Section 110.1(k) of Title 11 of the Code of Federal Regulations states, in
part, that any contribution made by more than one person, except for a contribution made
by a partnership, shall include the signature of each contributor on the check, money
order, or other negotiable instrument or in a separate writing and if a contribution made
by more than one person does not indicate the amount to be attributed to each contributor,
the contribution shall be attributed equally to each contributor. Ifa contribution to a
candidate or political committee, either on its face or when aggregated with other
contributions from the same contributor, exceeds the limitations on contributions set forth
in 11 CFR $110.1, the treasurer of the recipient political committee may ask the
contributor whether the contribution was intended to be a joint contribution by more than
one person. A contribution shall be considered to be reattributed to another contributor if

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FEDERAL ELECTION COMMISSION

WASHINGTON, DC 20464

REPORT OF THE AUDIT DIVISION
ON
SHARPLESS 2000
EXECUTIVE SUMMARY

Sharpless 2000 registered with the Federal Election Commission on September 23,
1999 as the principal campaign committee for Mr. John Sharpless, Republican candidate
for the U.S. House of Representatives from the state of Wisconsin, Second District. The
Treasurer for Sharpless 2000 during the audit period was Ms. Mary Ann McCoshen. On
April 12, 2001, Mr. Barry Widera became Treasurer and continues to serve in that
capacity. Sharpless 2000 maintains its headquarters in Madison, WI.

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 two audit findings summarized below were presented to Sharpless 2000 at the
completion of fieldwork on June 29, 2001 and later in the interim audit report (IAR).
Sharpless 2000's responses to the findings are contained in the audit report.

RECEIPT OF CONTRIBUTIONS IN EXCESS OF THE LIMITATION - 2 U.S.C. Section
441a(a)(1). The audit questioned apparent excessive contributions totaling $20,056 from
41 individuals. Sharpless 2000 did not make available reattribution or redesignation letters
for any of the above contributors.

In response to the interim audit report, Sharpless 2000 stated they were meticulous
in orally informing contributors what the limitations were and what they could contribute
relative to the primary and general elections. The response also spoke to the regulatory
requirements for designation by contributors and the responsibilities of the treasurer in
determining illegal contributions. Finally, the response also contained letters of intent
signed by some of the contributors, stating it was their intention was to have contributions
to the primary in excess of $1,000, and up to $2,000, to be contributions to the general.
Sharpless 2000 made no refunds nor disclosed the excessive contributions as debts owed on
Schedule D (Debts and Obligations).

DISBURSEMENT DOCUMENTATION - 2 U.S.C. §432(c)(5). Based on a sample review of
disbursements, Sharpless 2000 did not maintain a canceled check, invoice or bill for a
material number of disbursements, in excess of $200. The bank account arrangement did
not provide for the bank to return canceled checks to Sharpless 2000, which contributed
significantly to the problem. In response to the interim audit report, Sharpless 2000
provided copies of cancelled checks, resolving this matter.

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TABLE OF CONTENTS

SHARPLESS 2000

Executive Summary
Final Audit Report
Background
Findings
Transmittal to Committee

Chronology

Page

we

w


REPORT OF THE AUDIT DIVISION
ON

SHARPLESS 2000

Approved October 16, 2001

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



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CHRONOLOGY

SHARPLESS 2000

Audit Fieldwork
Interim Audit Report
to the Committee

Response Received to the
Interim Audit Report

Final Audit Report Approved

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June 18 -
June 29, 2001

August 17, 2001

September 19, 2001

October 16, 2001