FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

December 11, 2008 

MEMORANDUM 

To: Robert W. Biersack 

Press Officer 

• 

From: Wanda J. ThomaSll4r 

Acting Assistant S~¥f'''Director

Audit Division 

Subject:	 Public Issuance of the Audit Report on the Derrick Shepherd Campaign 

Committee 

Attached please find a copy of the audit report on the Derrick Shepherd Campaign 

Committee, which was approved by the Commission on December 3,2008. 

All parties involved have received informational copies ofthe report and the report 

may be released to the public December 11, 2008. 

Attachment as stated 

cc:	 Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

DSDD Website 
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. 

Report of the Audit Division on the 

Derrick Shepherd Campaign 

Committee 

August 3,2006 - December 31,2006 

About the Campaign (p.2)
 

The Derrick Shepherd Campaign Committee is the principal campaign
 

committee for Derrick Shepherd, Democratic candidate for the U.S.
 

House of Representatives from the state ofLouisiana, 2nd District and
 

is headquartered in Marrero, Louisiana. For more information, see the
 

chart on the Campaign Organization, p. 2.
 

Financial Activity (p. 2) 

• Receipts 

o From Individuals	 $287,211 

o Loans from Candidate	 154,125 

o From Other Political Committees 15,300 

o Other Receipts	 152 

o Total Receipts	 $456,788 

• Disbursements 

o	 Operating Expenditures and Other 

Disbursements $462,779 

o Total Disbursements	 $462,779 

Findings and Recommendations (p. 3) 

•	 Permissibility ofCandidate Loans (Finding I) 

•	 Receipt of Prohibited Contributions (Finding 2) 

•	 Receipt ofContributions that Exceed Limits (Finding 3) 

•	 Misstatement ofFinancial Activity (Finding 4) 

• Disclosure ofContributions (Finding 5) 

• Failure to File 48-Hour Notices (Finding 6) 

• Disclosure of Occupation and Name of Employer (Finding 7) 

1 2 U.S.C. §438(b). 
Table of Contents 

Page 

Part I. Background
 

Authority for Audit 1
 

Scope ofAudit 1
 

Limitations 1
 

Part II. Overview of Campaign
 

Campaign Organization 2
 

Overview of Financial Activity 2
 

Part III. Summaries 

Findings and Recommendations 3
 

Part IV. Findings and Recommendations
 

Finding 1. Permissibility ofCandidate Loans 5
 

Finding 2. Receipt of Prohibited Contributions 6
 

Finding 3. Receipt of Contributions that Exceed Limits 9
 

Finding 4. Misstatement of Financial Activity 11
 

Finding 5 Disclosure of Contributions 13
 

Finding 6. Failure to File 48-Hour Notices 14
 

Finding 7. Disclosure of Occupation and Name ofEmployer 15
 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Derrick Shepherd Campaign Committee (DSC), 

undertaken by the Audit Division ofthe Federal Election Commission (the Commission) 

in accordance with the Federal Election Campaign Act of 1971, as amended (the Act). 

The Audit Division conducted the audit pursuant to 2 U.S.c. §438(b), which permits the 

Commission to conduct audits and field investigations of any political committee that is 

required to file a report under 2 U.S.C. §434. Prior to conducting any audit under this 

subsection, the Commission must perform an internal review of reports filed by selected 

committees to determine if the reports filed by a particular committee meet the threshold 

requirements for substantial compliance with the Act. 2 U.S.c. §438(b). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, the scope ofthis audit was limited to the following: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The disclosure of contributions received. 

4. The consistency between reported figures and bank records. 

5. The completeness of records. 

6. Other committee operations necessary to the review. 

Limitations 

Although DSC provided some documentation in support of loans made by the Candidate, 

additional documentation requested by the Audit staffto determine the source offunds 

used for these loans was not provided. As a result, our review ofloans was limited with 

respect to disclosure and permissibility ofthe funds used to make these loans. (See 

Finding 1, Permissibility ofCandidate Loans) 
2 

Part II 

Overview of Campaign 

Campaign Organization 

Important Dates Derrick Shepherd Campaign Committee 

• Date of Registration August 10,2006 

• Audit Coverage August 3, 2006 - December 31, 2006 

Headquarters Marrero, Louisiana 

Bank Information 

• Bank Depositories One 

• Bank Accounts One checking account 

Treasurer 

• Treasurer When Audit Was Conducted Byron Lee 

• Treasurer During Period Covered by Audit Byron Lee 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Used Commonly Available Campaign 

Management Software Package 

Yes 

•	 Who Handled Accounting, Recordkeeping Paid staff 

Tasks and Other Day-to-Day Operations 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand @ August 3, 2006 $ 0 

$ 287,211 

154,125 

15,300 

152 

$ 456,788 

Receipts 

0 From Individuals 

0 Loans from Candidate 

0 From Other Political Committees 

0 Other Receipts 

0 Total Receipts 

Disbursements 

$ 462,779 

0 Operating Expenditures and Other 

Disbursements 

0 Total Disbursements $ 462,779 

Cash on hand @ December 31, 2006 $ (5,991) 2 

2 DSC bank statements did not show a negative balance because of outstanding checks as ofDecember 31, 

2006. 
3 

Part III 

Summaries 

Findings and Recommendations 

Failure to Respond to the Interim Audit Report 

An interim audit report was issued on March 21, 2008, advising DSC of the findings and 

recommendations resulting from the audit ofthe Derrick Shepherd Campaign Committee. 

The Audit staff contacted the treasurer on March 28, 2008 to confirm receipt of the 

interim audit report. DSC was requested to respond to the interim audit report by April 

23,2008. On April 22, 2008 the treasurer was sent an e-mail reminding him of the 

response due date. DSC did not respond to the interim audit report recommendations or 

request an extension of time to respond. 

Finding 1. Permissibility of Candidate Loans 

DSC reported twelve loans from the Candidate totaling $154,125. The Audit staff made 

numerous requests of DSC for supporting documentation to determine whether the loans 

were made from the Candidate's personal funds. In addition, a letter was sent to the 

Candidate requesting such documentation which was followed by a telephone 

conversation concerning the needed records. No documentation has been provided. The 

Audit staff recommended that DSC provide evidence demonstrating that these loans were 

made from the Candidate's personal funds. (For more detail, see page 5.) 

Finding 2. Receipt of Prohibited Contributions 

DSC received sixteen prohibited contributions totaling $22,900 from limited liability 

companies (LLCs) and corporate entities. Should DSC establish that the contributions 

from two ofthe limited liability companies are from permissible sources, $7,200 would 

be added to the excessive contributions in Finding 3. Of this amount, $4,200 could be 

resolved by DSC sending presumptive redesignation letters. The remaining excessive 

contributions totaling $3,000 are resolvable only by refund. The Audit staff 

recommended that DSC either provide evidence that these contributions were made with 

permissible funds or refund them. (For more detail, see page 6.) 

Finding 3. Receipt of Contributions that Exceed Limits 

DSC accepted 36 contributions from individuals that exceeded the limit by $61,310. Of 

these excessive contributions, $31,310 was eligible for presumptive election designation 

and contributor attribution. However, there was no evidence that the required notices had 

been sent to contributors. The remaining excessive contributions, $30,000, were not 

eligible for presumptive redesignation and/or reattribution. The Audit staff recommended 

that DSC provide evidence demonstrating that the contributions were not excessive, send 
4 

notices to those contributors that were eligible for presumptive redesignation and/or 

reattribution, or refund the excessive amounts. (For more detail, see page 9.) 

Finding 4. Misstatement of Financial Activity 

A comparison ofDSC's reported financial activity to its bank records revealed that, for 

2006, reported receipts were overstated by $54,740 and ending cash was similarly 

overstated. The Audit staff recommended that DSC amend its reports to correct the 

misstatement. (For more detail, see page 11.) 

Finding 5. Disclosure of Contributions 

Results of a review of all contributions received from individuals indicated that DSC did 

not adequately disclose the name and address of contributors or the date of receipt for 

individual contributions totaling $46,150. The Audit staff recommended that DSC amend 

its reports to correct the disclosure of these contributions. (For more detail, see page 13:) 

Finding 6. Failure to File 48-Hour Notices 

DSC did not file 48-hour notices for 15 contributions totaling $94,100 received prior to 

both the primary and general elections. Of this amount, $84,000 was loans from the 

Candidate. The Audit staff recommended that DSC provide evidence that 48-hour 

notices were timely filed, that no notice was required, or submit any comments it 

considers relevant. (For more detail, see page 14.) 

Finding 7. Disclosure of Occupation and Name of 

Employer 

DSC did not adequately disclose occupation and/or name of employer information for 

contributions from individuals totaling $55,350. In addition, there was no evidence that 

"best efforts" to obtain, maintain and submit the information had been exercised. The 

Audit staff recommended that DSC demonstrate that it has exercised best efforts to obtain 

the necessary information or contact each contributor for which the information is 

lacking, submit evidence of such contact, and disclose any information received in 

amended reports. (For more detail, see page 15.) 
5 

Part IV 

Findings and Recommendations 

Failure to Respond to the Interim Audit Report 

An interim audit report was issued on March 21, 2008, advising DSC of the findings and 

recommendations resulting from the audit ofthe Derrick Shepherd Campaign Committee. 

The Audit staff contacted the treasurer on March 28, 2008 to confirm receipt of the 

interim audit report. DSC was requested to respond to the interim audit report by April 

23,2008. On April 22, 2008 the treasurer was sent an e-mail reminding him of the 

response due date. DSC did not respond to the interim audit report recommendations or 

request an extension of time to respond. 

IFinding 1. Permissibility of Candidate Loans 

Summary 

DSC reported twelve loans from the Candidate totaling $154,125. The Audit staff made 

numerous requests of DSC for supporting documentation to determine whether the loans 

were made from the Candidate's personal funds. In addition, a letter was sent to the 

Candidate requesting such documentation which was followed by a telephone 

conversation concerning the needed records. No documentation has been provided. The 

Audit staff recommended that DSC provide evidence demonstrating that these loans were 

made from the Candidate's personal funds. 

Legal Standard 

A. Formal Requirements Regarding Reports and Statements: An authorized 

committee shall maintain all records, including bank records, with respect to the matters 

required to be reported which shall provide in sufficient detail the necessary information 

and data from which the filed reports and statements may be verified, explained, clarified, 

and checked for accuracy and completeness. 11 CFR §104. 14(b)(1). 

B. Expenditures by Candidates. Candidates for Federal office may make unlimited 

expenditures from personal funds as defined in 11 CFR §§100.33 and 110.10. 

C. Personal Funds. Personal funds of a candidate means the sum of all ofthe 

following: 

1.	 Assets. Amounts derived from any asset that, under applicable State law, at the 

time the individual became a candidate, the candidate had legal right of access to 

or control over, and with respect to which the candidate had­

•	 Legal and rightful title; or 

•	 An equitable interest; 

2.	 Income. Income received during the current election cycle, as defined in 11 CFR 

400.2, of the candidate. 

3.	 Jointly owned assets. Amounts derived from a portion of assets that are owned 

jointly by the candidate and the candidate's spouse as follows: 
6 

•	 The portion of assets that is equal to the candidate's share of the asset under 

the instrument of conveyance or ownership; provided, however, 

•	 If no specific share is indicated by an instrument of conveyance or ownership, 

the value of one-half of the property. 11 CFR §100.33. 

Facts and Analysis 

DSC reported receiving twelve loans from the Candidate totaling $154,125. 3 For 

$141,500 ofthese loans, DSC provided copies of checks drawn on the Candidate's 

personal bank accounts used to make these loans. In addition, DSC provided copies of 

money orders purchased by the Candidate to make $10,000 of these loans and a certified 

bank check used to make another $1,000 loan. For the remaining loans ($1,625), DSC 

only provided copies of deposit slips which indicated checks were deposited; however, 

the check copies were not made available. 

In order to verify that the source of funds for all ofthese loans was the Candidate's 

personal funds, it is necessary for the Audit staff to review, at a minimum, the records for 

the accounts that the checks were drawn on, and documentation to verify the source of the 

funds used to purchase the cashier's check and money orders. The Audit staff made 

numerous requests of DSC for this documentation, but none was provided. In addition, a 

letter was sent to the Candidate requesting such documentation and noting that if not 

provided the Commission may draw an adverse inference about the source of the funds 

from the failure to provide the requested records. Finally, a follow-up telephone 

conversation was held with the Candidate to reiterate the need for these records. None of 

the documentation requested has been provided by either DSC or the Candidate. 

At the exit conference, the Audit staff discussed this issue with DSC's representative and 

a schedule was provided detailing the loan activity. 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service of the interim
 

report, DSC provide evidence demonstrating that the loans to DSC were made from the
 

Candidate's personal funds. It was noted that failure to provide the necessary records
 

may lead the Commission to draw an adverse inference concerning the source of the
 

funds provided to DSC by the Candidate.
 

IFinding 2. Receipt of Prohibited Contributions 

Summary 

DSC received sixteen prohibited contributions totaling $22,900 from limited liability 

companies (LLCs) and corporate entities. Should DSC establish that the contributions 

from two of the limited liability companies are from permissible sources, $7,200 would 

be added to the excessive contributions in Finding 3. Of this amount, $4,200 could be 

resolved by DSC sending presumptive redesignation letters. The remaining excessive 

The 2007 April 15 Quarterly report filed by DSC converts these loans to contributions from the 

Candidate and extinguishes the loans. 

3 
7 

contributions totaling $3,000 are resolvable only by refund. The Audit staff 

recommended that DSC either provide evidence that these contributions were made with 

permissible funds or refund them. 

Legal Standard 

A. Receipt of Prohibited Corporate Contributions. Political campaigns may not 

accept contributions made from the general treasury funds of corporations. This 

prohibition applies to any type of corporation including a non-stock corporation, an 

incorporated membership organization, and an incorporated cooperative. 2 U.S.c. §441b. 

B. Definition of Limited Liability Company. A limited liability company (LLC) is a 

business entity recognized as an LLC under the laws of the state in which it was 

established. 11 CFR §110.1(g)(I). 

C. Application of Limits and Prohibitions to LLC Contributions. A contribution 

from an LLC is subject to contribution limits and prohibitions, depending on several 

factors, as explained below: 

1.	 LLC as Partnership. The contribution is considered a contribution from a 

partnership ifthe LLC chooses to be treated as a partnership under Internal 

Revenue Service (IRS) tax rules, or if it makes no choice at all about its tax status. 

For the 2006 election, a partnership contribution may not exceed $2,100 per 

candidate, per election, and it must be attributed to one or more partners. 11 CFR 

§IIO.I(a), (b), (e) and (g)(2). 

2.	 LLC as Corporation. The contribution is considered a corporate contributionand is barred under the Act-if the LLC chooses to be treated as a corporation 

under IRS rules, or if its shares are traded publicly. 11 CFR §110.1(g)(3). 

3.	 LLC with Single Member. The contribution is considered a contribution from a 

single individual ifthe LLC is a single-member LLC that has not chosen to be 

treated as a corporation under IRS rules. 11 CFR §II 0.1(g)(4). 

D. Limited Liability Company's Responsibility to Notify Recipient Committee. At 

the time it makes a contribution, an LLC must notify the recipient committee: 

•	 That it is eligible to make the contribution; and 

•	 In the case of an LLC that considers itself a partnership (for tax purposes), how the 

contribution should be attributed among the LLC's members. 11 CFR §110.1(g)(5). 

E. Questionable Contributions. If a committee receives a contribution that appears to 

be prohibited (a questionable contribution), it must follow the procedures below: 

1. Within 10 days after the treasurer receives the questionable contribution, the 

committee must either: 

•	 Return the contribution to the contributor without depositing it; or 

•	 Deposit the contribution (and follow the steps below). 11 CFR §103.3(b)(I). 

2.	 Ifthe committee deposits the questionable contribution, it may not spend the 

funds and must be prepared to refund them. It must therefore maintain sufficient 

funds to make the refunds or establish a separate account in a campaign 

depository for possibly illegal contributions. 11 CFR §103.3(b)(4). 
8 

3.	 The committee must keep a written record explaining why the contribution may 

be prohibited and must include this information when reporting the receipt ofthe 

contribution. 11 CFR §103.3(b)(5). 

4.	 Within 30 days ofthe treasurer's receipt ofthe questionable contribution, the 

committee must make at least one written or oral request for evidence that the 

contribution is legal. Evidence of legality includes, for example, a written 

statement from the contributor explaining why the contribution is legal or an oral 

explanation that is recorded by the committee in a memorandum. 11 CFR 

§103.3(b)(I). 

5.	 Within these 30 days, the committee must either: 

•	 Confirm the legality of the contribution; or 

•	 Refund the contribution to the contributor and note the refund on the report 

covering the period in which the refund was made. 11 CFR §103.3(b)(l). 

F. Refund or Disgorge Questionable Contributions. If the identity of the original 

contributor is known, the committee must either refund the funds to the source ofthe 

original contribution or pay the funds to the U.S. Treasury. AO 1996-5. 

Facts and Analysis 

A review of contributions from individuals resulted in the identification of 16 apparent 

prohibited contributions totaling $22,900. Of these, 14 contributions totaling $22,600 

had been received from ten LLCs. DSC did not provide documentation detailing the tax 

filing status of these entities. The two remaining contributions totaling $300 were from 

entities whose corporate status was verified with the Secretary of State. DSC did not 

maintain sufficient funds in its bank account to make the necessary refunds. 

Should DSC establish that the contributions from two ofthe limited liability companies 

are from permissible sources, $7,200 would be added to the excessive contributions in 

Finding 3. Ofthis amount, $4,200 could be resolved by DSC sending presumptive 

redesignation letters. The remaining excessive contributions totaling $3,000 are 

resolvable only by refund. 

At the exit conference, the Audit staff discussed this issue with DSC's representative and 

provided schedules. The representative agreed to review these schedules to determine 

whether they concurred with the exceptions listed and respond accordingly. 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service of the interim 

report, DSC: 

•	 Provide evidence demonstrating that the contributions in question were made with 

permissible funds and were not excessive; or 

•	 Refund the impermissible funds, refund/resolve the excessive contributions as noted 

above and provide evidence of such refunds (copies of the front and back of 

negotiated refund checks) or disgorge the funds to the U.S. Treasury; or 
9 

•	 Iffunds are not available to make the necessary refunds, disclose the contributions 

requiring refunds on Schedule D (Debt and Obligations) until funds become available 

to make such refunds. 

IFinding 3. Receipt of Contributions that Exceed Limits 

Summary 

DSC accepted 36 contributions from individuals that exceeded the limit by $61,310. Of 

these excessive contributions, $31,310 was eligible for presumptive election designation 

and contributor attribution. However, there was no evidence that the required notices had 

been sent to contributors. The remaining excessive contributions, $30,000, were not 

eligible for presumptive redesignation and/or reattribution. The Audit staff recommended 

that DSC provide evidence demonstrating that the contributions were not excessive, send 

notices to those contributors that were eligible for presumptive redesignation and/or 

reattribution, or refund the excessive amounts. 

Legal Standard 

A. Authorized Committee Limits. For the 2006 election, an authorized committee may 

not receive more than a total of $2, 100 per election from anyone person as adjusted by 

the Consumer Price Index (CPI). 2 U.S.C. §44Ia(a)(l)(A), (2)(A) and (f); 11 CFR 

§§IIO.I(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 of contributions 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 ofthe contribution for use in another election. 

•	 The committee must, within 60 days of receipt ofthe contribution, obtain and 

retain a signed redesignation letter which informs the contributor that a refund of 

the excessive portion may be requested; or 

•	 Refund the excessive amount. 11 CFR §§110.1(b)(5), 110.1(1)(2) and
 

103.3(b)(3).
 

Notwithstanding 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 ifthe contribution: 

•	 Is made before that candidate's primary election; 

•	 Is not designated in writing for a particular election; 
10 

•	 Would be excessive if treated as a primary election contribution; and 

•	 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 ofthe notices sent. Presumptive redesignations apply only within the same 

election cycle. 11 CFR §11O.1(b)(5)(ii)(B) & (C) and (l)(4)(ii). 

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 ofthe contribution, obtain and 

retain a reattribution letter signed by all contributors; or 

•	 Refund the excessive contribution. 11 CFR §§110.I(k)(3), 110.1(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: 

•	 How the contribution was attributed; and 

•	 The contributor may instead request a refund ofthe excessive amount. 11 CFR 

§11 0.1(k)(3)(ii)(B). 

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

§110.1(l)(4)(ii). 

E. Refund or Disgorge Questionable Contributions. Ifthe identity ofthe original 

contributor is known, the committee must 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 

The Audit staff reviewed contributions from individuals to determine if excessive 

contributions were received. The review identified 36 contributions that exceeded the 

limit by $61,310. During this review, it was noted that DSC routinely redesignated 

contributions to another election or reattributed contributions to another individual. 

However, no documentation was provided by DSC in support of these redesignations and 

reattributions; neither signed redesignations or reattributions, nor the contributor 

notifications required for presumptive reattribution or redesignation. 
II 

Of the excessive contributions, $31,310 could be resolved by DSC sending presumptive 

redesignation and/or reattribution letters. The remaining excessive contributions totaling 

$30,000 are resolvable only by refund. DSC did not maintain sufficient funds in its bank 

account to make the necessary refunds. 

At the exit conference, the Audit staff provided DSC's representative with schedules of 

the excessive contributions noted above. The representative agreed to review these 

schedules to determine whether he concurred with the exceptions listed and would 

respond accordingly. 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service of the interim
 

report, DSC:
 

•	 Send notices to those contributors whose contributions were eligible for presumptive 

redesignation and/or reattribution ($31,310) informing them how their contribution 

was designated and/or attributed and offer a refund of the excessive amount. Absent a 

request for a refund by the contributors, these notices would obviate the need for 

contribution refunds or payments to the U.S. Treasury. For notices sent to 

contributors, DSC should provide a copy of each notice and evidence that it was sent. 

The notices must demonstrate that both the contributor and the individual to whom 

the contribution was reattributed were notified. If any contributor cannot be located 

or if the presumptive notice comes back undeliverable, a disgorgement of the 

excessive contribution should be made to the U.S. Treasury; and 

•	 Provide evidence demonstrating that the remaining contributions totaling $30,000 

were not excessive. Such evidence should include, but not be limited to, 

documentation that the contributions were reattributed, redesignated, or refunded in a 

timely manner; or 

•	 Absent such evidence, refund $30,000 to the contributors and provide evidence of
 

such action (copies of the front and back of negotiated refund checks) or make a
 

disgorgement to the U.S. Treasury; or
 

•	 If funds are not available to make the necessary refunds, disclose the contributions 

requiring refunds on Schedule D (Debt and Obligations) until funds become available 

to make such refunds. 

I Finding 4. Misstatement of Financial Activity 

Summary 

A comparison ofDSC's reported financial activity to its bank records revealed that, for 

2006, reported receipts were overstated by $54,740 and ending cash was similarly 

overstated. The Audit staff recommended that DSC amend its reports to correct the 

misstatement. 

Legal Standard 

Contents of Reports. Each report must disclose: 

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

•	 The total amount of receipts for the reporting period and for the calendar year; 
12 

•	 The total amount of disbursements for the reporting period and for the calendar year; 

and 

•	 Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.c. §434(b)(l), (2), (3), (4), and (5). 

Facts and Analysis 

The Audit staff reconciled reported financial activity to bank records for calendar year 

2006 and noted a misstatement of receipts and ending cash. The following chart outlines 

the discrepancies. 

2006 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance $0 $0 $0 

@J August 3, 2006 I 

Receipts $511,528 $456,788 $54,740 

Overstated 

Disbursements $462,788 $462,779 $9 

Overstated 

Ending Cash Balance $48,740 $(5,991) $54,731 

December 31, 2006 Overstated 

The overstatement of receipts resulted from the following: 

•	 Bank adjustments, e.g., reported contribution checks $ 49,350
 

returned for non-sufficient funds
 

•	 Contribution from BUILD PAC reported twice 5,000 

•	 Reported loan from Candidate not supported by deposit 500 

•	 Contribution amounts reported incorrectly (net) 90 

•	 Unitemized receipts understated (300) 

•	 Unexplained difference 100 

Net overstatement of receipts	 $ 54,740 

The $54,731 overstatement of ending cash on hand resulted primarily from the 

misstatement of receipts noted above. 

At the exit conference, the Audit staff explained the misstatements and indicated that 

most of the receipts difference was due to bank adjustments that were not subsequently 

corrected in the reports. Schedules were provided to DSC's representative detailing these 

discrepancies. The representative explained that he didn't have access to bank statement 

information when preparing the reports. He agreed to review the schedules provided. 
13 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service ofthe interim
 

report, DSC amend its reports to correct the misstatements noted above.
 

IFinding 5. Disclosure of Contributions 

Summary 

Results of a review of all contributions received from individuals indicated that DSC did 

not adequately disclose the name and address of contributors or the date ofreceipt for 

individual contributions totaling $46,150. The Audit staff recommended that DSC amend 

its reports to correct the disclosure ofthese contributions. 

Legal Standard 

A. Itemization Required for Contributions from Individuals. An authorized 

candidate committee must itemize any contribution from an individual if it exceeds $200 

per election cycle, either by itself or when combined 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 ofthe 

previous general election and ends on the date ofthe next general election. 11 CFR 

§100.3(b). 

C. Required Information for Contributions from Individuals. For each itemized 

contribution from an individual, the committee must provide the following information: 

• The contributor's full name and address (including zip code); 

• The contributor's occupation and the name of his or her employer; 

• The date ofreceipt (the date the committee received the contribution); 

• The amount ofthe contribution; and 

• The election cycle-to-date total of all contributions from the same individual. 2 

U.S.C. §434(b)(3)(A) and 11 CPR §§100.12 and 104.3(a)(4). 

Facts and Analysis 

Results of a review of contributions received from individuals required to be itemized 

indicated that DSC did not adequately disclose the name and address of contributors or 

the date of receipt for 38 contributions totaling $46,150. Most ofthe discrepancies were 

due to the disclosure of an incorrect date ofreceipt. Although the Audit staff could not 

determine the source ofthe date used by DSC, in most instances the date reported was 

three to five days after the date on the deposit slip. Most ofthese errors occurred for 

contributions deposited during the month of October 2006. 

At the exit conference, DSC was provided schedules detailing these discrepancies. The 

DSC representative agreed to review these schedules. 
14 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service of the interim
 

report, DSC amend its report to correct the disclosure of these receipts on Schedules A
 

(Itemized Receipts).
 

I Finding 6. Failure to File 48-Hour Notices 

Summary 

DSC did not file 48-hour notices for 15 contributions totaling $94,100 received prior to 

both the primary and general elections. Ofthis amount, $84,000 was loans from the 

Candidate. The Audit staff recommended that DSC provide evidence that 48-hour 

notices were timely filed, that no notice was required, or submit any comments it 

considers relevant. 

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 not 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, including: 

•	 Contributions from the candidate; 

•	 Loans from the candidate and other non-bank sources; and 

•	 Endorsements or guarantees ofloans from the banks. II CFR §I04.5(f). 

Facts and Analysis 

The Audit staff reviewed 55 contributions, totaling $177,551, which were greater than 

$1,000 and received during the 48-hour notice filing period of both the primary and 

general elections. DSC did not file 48-hour notices for 15 contributions totaling $94, I00. 

Of this amount, six contributions totaling $84,000 were loans from the Candidate. 

At the exit conference, DSC was provided a schedule of the 48-hour notices not filed. 

The DSC representative stated that he would review these schedules. 

Interim Audit Report Recommendation 

The Audit staffrecommended that, within 30 calendar days ofservice ofthe interim 

report, DSC provide: 

•	 Documentation to demonstrate that 48-hour notices were filed for the contributions in 

question; or 

•	 Documentation establishing the contributions were not subject to 48-hour 

notification; and 

•	 Any comments it considers relevant. 
15 

Finding 7. Disclosure of Occupation and Name of 

Employer 

Summary 

DSC did not adequately disclose occupation and/or name of employer information for 

contributions from individuals totaling $55,350. In addition, there was no evidence that 

"best efforts" to obtain, maintain and submit the information had been exercised. The 

Audit staff recommended that DSC demonstrate that it has exercised best efforts to obtain 

the necessary information or contact each contributor for which the information is 

lacking, submit evidence of such contact, and disclose any information received in 

amended reports. 

Legal Standard 

A. Required Information for Contributions from Individuals. For each itemized 

contribution from an individual, the committee must provide the contributor's occupation 

and the name of his or her employer. 2 U.S.c. §431(l3) and 11 CFR §100.12. 

B. Best Efforts Ensures Compliance. When the treasurer ofa political committee 

shows that the committee used best efforts (see below) to obtain, maintain, and submit the 

information required by the Act, the committee's reports and records will be considered 

in compliance with the Act. 2 U.S.c. §432(h)(2)(i). 

C. Definition of Best Efforts. The treasurer and the committee will be considered to 

have used "best efforts" ifthe committee satisfied all ofthe following criteria: 

•	 All written solicitations for contributions included: 

o	 A clear request for the contributor's full name, mailing address, occupation, 

and name of employer; and 

o	 The statement that such reporting is required by Federal law. 

•	 Within 30 days after the receipt of the contribution, the treasurer made at least one 

effort to obtain the missing information, in either a written request or a 

documented oral request. 

•	 The treasurer reported any contributor information that, although not initially 

provided by the contributor, was obtained in a follow-up communication or was 

contained in the committee's records or in prior reports that the committee filed 

during the same two-year election cycle. 11 CFR §104.7(b). 

Facts and Analysis 

The Audit staff reviewed all reported contributions from individuals to determine if the 

necessary contributor information was disclosed. The review indicated that DSC did not 

adequately disclose the occupation and/or name of employer for 44 contributions totaling 

$55,350. For $32,100 of these items, DSC disclosed an occupation such as developer or 

investor with no name of employer. In addition, for $19,250, DSC disclosed that best 

efforts had been exercised. 

Although requested, DSC did not provide copies of solicitation materials or a description 

of their best efforts procedures. In addition, the records provided to the Audit staff did 
16 

not contain any follow-up requests for missing contributor information. As a result, DSC 

does not appear to have made "best efforts" to obtain, maintain and report occupation and 

name of employer information. 

At the exit conference, DSC was provided schedules ofthe contributions requiring 

additional disclosure information. The DSC representative stated that these schedules 

would be reviewed and any comments regarding DSC's best efforts procedures would be 

submitted in writing. 

Interim Audit Report Recommendation 

The Audit staff recommended that, within 30 calendar days of service of the interim 

report, DSC take the following action: 

•	 Provide documentation such as phone logs, returned contributor letters, completed 

contributor contact information sheets or other materials which demonstrate that best 

efforts were made to obtain, maintain, and submit the required disclosure information; 

or 

•	 Absent such a demonstration, make an effort to contact those individuals for whom 

required information is missing or incomplete, provide documentation of such 

contacts (such as copies of letters to the contributors and/or phone logs), and amend 

its reports to disclose any information obtained from those contacts.