Final Audit Report of the 

Commission 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 

(tiie 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. 

About the Campaign (p. 2) 

Paul Tonko for Congress is the principal campaign conimittee 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 

Commission Findings (p. 3) 

• Receipt of Prohibited Contributions (Finding I) 

• Misstatement of Financial Activity (Finding 2) 

Future Action 

The Commission 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). 
Report of the 

Commission 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 

Audit Hearing 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Commission Findings 3 

Part IV. Commission Findings 

Finding 1. Receipt of Prohibited Contributions 4 

Finding 2. Misstatement of Financial Activity 6 
Parti 

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 peimits 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 whether 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 figures and bank records; 

6. the completeness of records; and 

7. other committee operations necessary to the review. 

Audit Hearing 

TFC declined the opportunity for an audit hearing before the Commission. 
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 Commission 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 Committees 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 

Summaries 

Commission Findings 

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. 

In response to the Interim Audit Report, TFC refunded 14 impermissible contributions 

totaling $5,450 and disgorged the balance of $1,255 to the United States Treasury. 

The Commission approved a finding that TFC received $6,705 in prohibited 

contributions. (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. 

In response to the Interim Audit Report, TFC amended its disclosure reports to correct 

the misstatements. 

The Commission approved a finding that TFC had misstated its financial activity for 

calendar year 2009. (For more detail, see p. 6.) 
Part IV 

Commission Findings 

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. 

In response to the Interim Audit Report, TFC refimded 14 impermissible contributions 

totaling $5,450 and disgorged the balance of $1,255 to the United States Treasury. 

The Commission approved a finding that TFC received prohibited contributions. 

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)(1). 

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 could not exceed $2,400 per 

candidate, per election, and it should have been attributed to each lawfril 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 rules. 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 

• how the contribution should be attributed among the LLC's members in the case of an 

LLC that considers itself a partnership (for tax purposes). 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)(l). 

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

funds and must be prepared to refimd 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 conimittee in a memorandum. 11 CFR 

§103.3(b)(l). 

5. Within these 30 days, the conimittee 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 had not addressed tiie remaining $1,255 ($6,705 - $2,400 - $3,050) from 

the sample projection. 

B. Interim Audit Report & Audit Division Recommendation 

Audit staff discussed this matter with TFC representatives at the exit conference and 

provided them with a schedule of the apparent prohibited contributions. 

The Interim Audit Report recommended that TFC (1) provide evidence demonstrating 

that the contributions in question were made with permissible funds, (2) make the 

necessary refimds or (3) disgorge the impermissible amount to the U.S. Treasury. 

C. Committee Response to Interim Audit Report 

TFC Counsel noted that the Interim Audit Report does not associate the remaining 

amount of $1,255 with any particular contributions, making it impossible for TFC to 

demonstrate that the contributions were made with permissible fimds. TFC's Counsel 

further noted that the tme impermissible amount may have been lower than the sample 

projection suggested. 

TFC disgorged the remaining balance of $1,255 to the U.S. Treasury. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that TFC disgorged the 

remaining balance of $1,255 to the U.S. Treasury. 

Commission Conclusion 

On September 11,2012, the Commission considered the Audit Division 

Recommendation Memorandum in which the Audit Division recommended that the 

Commission adopt a finding that TFC received prohibited contributions. 

The Commission approved the Audit staffs recommendation. 

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. 

In response to the Interim Audit Report, TFC amended its disclosure reports to correct 

the misstatements. 

The Commission approved a finding that TFC had misstated its financial activity for 

calendar year 2009. 

TFC's Counsel provided copies of the front and back for only two of the 14 refund checks. 
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). 

Facts and Analysis 

A. Facts 

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

records for 2009 indicated that TFC misstated disbursements and the ending cash 

balance. TFC understated disbursements were by $9,286 and overstated ending cash 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 

@ January 1,2009 

$2,021 $2,012 $9 

Overstated 

Receipts $251,202 $250,238 $964 

Overstated 

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

Understated 

Ending Cash 

@ December 31,2009 

$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 

Understatement of Disbursements $ 9,286 

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

B. Interim Audit Report & Audit Division Recommendation 

Audit staff discussed this matter with the TFC representatives after the exit conference. 

The Interim Audit Report recommended that TFC amend its reports to correct the 

misstatements for 2009 and amend its most recently filed report to correct the cash-onhand balance with an explanation that the change resulted from a prior period audit 

adjustment. 
C. Committee's Response to Interim Audit Report 

TFC filed amended reports to materially correct the misstatement. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that TFC had filed 

amended reports for 2009 that materially corrected the misstatements. 

Commission Conclusion 

On September 11,2012, the Commission considered the Audit Division 

Recommendation Memorandum in which the Audit Division recommended that the 

Commission adopt a finding that TFC misstated its financial activity for calendar year 

2009. 

The Commission approved the Audit staffs recommendation.