Interim Audit Report of the 

Audit Division on 

Paul Tonko for Congress 

(January 1, 2009 - December 31, 2010) 

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.' TTie audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

About the Campaign (p. 2) 

Paul Tonko for Congress is the principal campaign committee for 

Paul David Tonko, Democratic candidate for the U.S. House of 

Representatives from the state of New York, 21^* District, and is 

headquartered in Albany, New York. For more information, see 

the chart on Campaign Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Contributions from Political 

Committees 

o Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Other Disbursements 

Total Disbursements 

$ 511,122 

476,034 

318 

$ 987,474 

$ 816,435 

13,654 

$ 830,089 

Findings and Recommendations (p. 

• Receipt of Prohibited Contributions (Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

3) 

Future Action 

The Conmiission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

2 U.S.C. §438(b). 
Interim Audit Report of the 

Audit Division on 

Paul Tonko for Congress 

(January 1, 2009 - December 31, 2010) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summary 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Receipt of Prohibited Contributions 4 

Finding 2. Misstatement of Financial Activity 6 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Paul Tonko for Congress (TFC), undertaken by the 

Audit Division of the Federal Election Commission (the Commission) in accordance with 

the Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 2 U.S.C. §438(b), which permits the Commission to 

conduct audits and field investigations of any political committee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the 

Commission must perform an intemal 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, this audit examined: 

1. the receipt of excessive contributions; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions received; 

4. the disclosure of individual contributors' occupation and name of employer; 

5. the consistency between reported frgures and bank records; 

6. the completeness of records; and 

7. other committee operations necessary to the review. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration May 6,2008 

• Audit Coverage January 1,2009 - December 31,2010 

Headquarters Albany, New York 

Bank Information 

• Bank Depositories One 

• Bank Accounts One 

Treasurer 

• Treasurer When Audit Was Conducted Mr. Patrick J. Bulgaro 

• Treasurer During Period Covered by Audit Mr. Patrick J. Bulgaro 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January 1,2009 $ 2,012 

Receipts 

o Contributions from Individuals 511,122 

o Contributions from Political Conmiittees 476,034 

o Other Receipts 318 

Total Receipts $ 987,474 

Disbursements 

o Operating Expenditures 816,435 

o Other Disbursements 13,654 

Total Disbursements $ 830,089 

Cash-on-hand @ December 31,2010 $ 159,397 
Part III 

Summary 

Findings and Recommendations 

Finding 1. Receipt of Prohibited Contributions 

During audit fieldwork, a sample review of contributions from individuals identified 

contributions received from apparent prohibited sources. The projected amount of 

apparent prohibited contributions received by TFC totaled $6,705. The Audit staff 

recommends that TFC provide evidence that these contributions were made with 

permissible funds or were reftmded in a timely manner. Absent such evidence, TFC 

should make appropriate refunds or a payment to the U.S. Treasury. 

(For more detail, see p. 4.) 

Finding 2. Misstatement of Financial Activity 

During audit fieldwork, a comparison of TFC's reported activity with its bank records 

revealed a misstatement of disbursements and ending cash-on-hand in 2009. TFC 

understated disbursements by $9,286 and overstated ending cash-on-hand by $10,259. 

The Audit Staff recommends that TFC amend its disclosure reports to correct the 

misstatements. 

(For more detail, see p. 6.) 
Part IV 

Findings and Recommendations 

Finding 1. Receipt of Prohibited Contributions 

Summary 

During audit fieldwork, a sample review of contributions from individuals identified 

contributions received from apparent prohibited sources. The projected amount of 

apparent prohibited contributions received by TFC totaled $6,705. The Audit staff 

recommends that TFC provide evidence that these contributions were made with 

permissible funds or were refimded in a timely manner. Absent such evidence, TFC 

should make appropriate refunds or a payment to the U.S. Treasury. 

Legal Standard 

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

accept contributions made from the general treasury frmds 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 §1 lO.l(gXl). 

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 if the LLC chooses to be treated as a partnership under Intemal 

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

For the 2010 election, a partnership contribution may not exceed $2,400 per 

candidate, per election, and it must be attributed to each lawful partner. 11 CFR 

§110.1(a), (b),(e) and (g)(2). 

2. LLC as Corporation. The contribution is considered a corporate contribution— 

and is barred under the Act—^if the LLC chooses to be treated as a corporation 

under IRS mles, 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 if the LLC is a single-member LLC that has not chosen to be 

treated as a corporation under IRS mles. 11 CFR §110.1 (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 of the treasurer's receipt of the questionable contribution, the 

committee must either: 

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

• deposit the contribution (and follow the steps below). 11 CFR § 103.3(b)(1). 

2. If the 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). 

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

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

contribution. 11 CFR §103.3(b)(5). 

4. Within 30 days of the treasurer's receipt of the 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)(l). 

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)(1) and 

(5). 

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 of the 

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

Facts and Analysis 

A. Facts 

During audit fieldwork, a sample review of contributions from individuals identified 

contributions received from apparent prohibited sources. The contributions were made 

on checks imprinted with Inc, LLC or PC. The projected amount of apparent prohibited 

contributions received by TFC totaled $6,705.^ TFC refunded four contributions 

identified in the sample totaling $2,400 and 10 other prohibited contributions totaling 

2 

The error amount was projected using a Monetary Unit Sample program with a 95% confidence level. 

The sample estimate of $6,705 (midpoint of range) could be as low as $3,047 or as high as $14,385. 
$3,050.^ TFC has not addressed the remaining $1,255 ($6,705 - $2,400 - $3,050) from 

the sample estimate. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit Staff presented this matter to TFC's representatives during the exit conference 

and provided a schedule of the apparent prohibited contributions. 

The Audit Staff recommends that, within 30 calendar days of receipt of this report, TFC 

provide evidence demonstrating that the contributions in question were made with 

permissible fimds. For contributions in question from LLCs, TFC should provide a 

statement from the contributing entity explaining its tax treatment or a copy of IRS Form 

8832, "Entity Classification Election." If TFC does not provide evidence tiiat the 

contributions were permissible or that the contributions were resolved in a timely 

manner, TFC should make the necessary refunds or disgorge to the U.S. Treasury the 

impermissible amount and provide evidence (copies of the front and back of all 

negotiated refund checks). If fimds are not available to make the necessary refunds or 

disgorgement, TFC should disclose the contributions requiring refunds on Schedule D 

(Debts and Obligations) until funds become available. 

I Finding 2. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of TFC's reported activity with its bank records 

revealed a misstatement of disbursements and ending cash-on-hand in 2009. TFC 

understated disbursements by $9,286 and overstated ending cash-on-hand by $10,259. 

The Audit Staff recommends that TFC amend its disclosure reports to correct the 

misstatements. 

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 election cycle ; 

• the total amount of disbursements for the reporting period and for the election cycle; 

and 

• certain transactions that require itemization on Schedule B. 2 U.S.C. §434(b)(l), (2), 

(4) and (5). 

TFC's Counsel provided a front and back copy of only two of the 14 refund checks. 
Facts and Analysis 

A. Facts 

During audit fieldwork, a reconciliation of TFC's reported financial activity with bank 

records for 2009 indicated that disbursements and the ending cash balance were 

misstated. Disbursements were understated by $9,286 and ending cash was overstated by 

$10,259. The following chart outlines the discrepancies for 2009 and provides 

explanations for the misstated activity. 

2009 Committee Activity 

Reported Bank Records Discrepancy 

Beginning Cash $2,021 $2,012 $9 

Overstated 

Receipts $251,202 $250,238 $964 

Overstated 

Disbursements $150,456 $159,742 $9,286 

Understated 

Ending Cash $102,767 $92,508 $10,259 

Overstated 

The understatement of disbursements was the result of the following: 

• Disbursements not reported $ 9,179 

• Unexplained difference 107 

Sum of Reporting Adjustments $ 9,286 

In 2009, TFC overstated ending cash by $10,259 due to the differences noted above. 

B. Interim Audit Report & Audit Division Recommendation 

Subsequent to audit fieldwork, the Audit staff informed TFC representatives of this 

finding and provided schedules of the identified reporting adjustments. 

The Audit staff recommends that, within 30 calendar days of receipt of this report, TFC: 

• amend its reports to correct the misstatements for 2009 as noted above; and 

• amend its most recently filed report to correct the cash-on-hand balance with an 

explanation that the change resulted from a prior period audit adjustment. 

Further, TFC should reconcile the cash balance of its most recent report to identify any 

subsequent discrepancies that may affect the adjustment recommended by the Audit staff.