FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

August 3, 2012 

MEMORANDUM 

To: The Commission 

Through: 

From: 

By: 

Alec Palmer 

Staff Director 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas Hintermister-""O^v 

Assistant Staff Director 

Audit Division 

Marty Kuest 

Audit Manager 

Pamela Wilkerson ^ /^If 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on Paul Tonko for 

Congress (A 11-05) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendatioiis below and discusses the findings in the 

attached Draft Final Audit Report. The Office of General Counsel has reviewed this 

memorandum and concurred with the recommendations. 

Finding 1. Receipt of Prohibited Contributions 

The Audit staff recommends that the Commission fmd that Paul Tonko for 

Congress received a projected total of $6,705 in contributions from apparent 

prohibited sources. 

Finding 2. Misstatement of Financial Activity 

The Audit staff recommends that the Commission find that Paul Tonko for 

Congress misstated their financial activity for calendar year 2009. 

The Committee did not request an audit hearing. 
If this memorandum is approved, a Proposed Final Audit Report will be prepared witiiin 

30 days of tiie Commission's vote. 

In case of an objection, Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder. 

Should you have any questions, please contact Pamela Wilkerson or Marty Kuest at 694-

1200. 

Attachment: 

- Draft Final Audit Report of tiie Audit Division on Paul Tonko for Congress 

cc: Office of General Counsel 
Draft Final 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 

(tiie Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have mci 

the threshold 

requirements for 4 

substantial compliance 

with the ActJjCh&audit 

determine 

comni^^ complied^ 

the Jlfl^^ns, 

prohibiti^^md 

disclosure i^BK^ments 

of the Act. 

About the Campaign 

Paul Tonko for Congress is 

Paul David Tonko, Demoq 

Representatives from th 

headquartered in Al ^ 

the chart on Camn 

Financiaf^c^ivity^ 2) 

• Receipts 

o^Contributions tioti" hidividuals 

tributions from Political 

1 campaign committee for 

didate for the U.S. House of 

York, 21"* District, and is 

more information, see 

IllCCS 

er Kcc-ji|!'..-s 

icvii/is 

Disbursements JF' 

o Opera%g Expenditures 

o Other D^^iirsements 

Tiiuil Disbursements 

$ 511,122 

476,034 

318 

$ 987,474 

$ 816,435 

13,654 

$ 830,089 

Fin^ffiags and Recommendations (p. 3) 

• Receipt of Prohibited Contributions (Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

Future Actioi 

The Commission m ^ 

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). 
Draft Final Audit Report of the 

Audit Division on 

Paul Tonko for Congress 

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

4r 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity Jfr s 2 

A 

Part III. Summaries 

Findings and Recommendations ' ^ 3 

Part IV. Findings and RecommfiendatiOns 

Finding 1. Receipt of Prohibited Contributio , jJF 4 

Finding 2. Misstatementof 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 committe'*'''^ is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit un^ uii^Ubsection, the 

Commission must perform an intemal review of reports 

determine if the reports filed by a particular committee 

for substantial compliance with the Act. 2 U.S.C. §4 iM.I 

elected committees to 

hold requirements 

valuated vanvuira lisk 

Scope of Audit ^ ' 

Following Commission-approved procedures^\i;dit st£ 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions; 

the receipt of contributions from ^^^'^ited sources;' 

the disclosure of contributions reccrv? ^ 

the disclosure of individual contribiiuiiN' occ!i|i.iiiiMi niiinc of employer; 

the consistency between reported fi!!l^'^^ iiiiil.lMiik w .):d^ 

the completeness of i cciiril.-*. and ^ 

2. 

3. 

4. 

5. 

6. 

7. other committee oi*-j:-.iiiiin> necessary to me review. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration May 6,2008 . 

• Audit Coverage January 1,20i)'/ December 31,2010 

Headquarters Albany, Ne# \ ^)Yk 

Bank Information 

• Bank Depositories One^ ^ 

• Bank Accoimts onr 

Treasurer When Audit Was Conducted 

Treasurer During Period Covered by Audit 

Management Information ^ 

• Attended Commission Campaign Fin. 

Seminar 

Mr ^triclaPI%ilgaro j r 

Mr. Pairuk J. Bulgaro 

No 

• Who Handled Accounting and 

Recordkeeping Tasks . — 

Overview of Finlpfbial Activity 

'(Audited ^mounts) 

Cash-on^iicl Januarx |. 21109 >^ $ 2,012 

Receipts |^ 

0 ContributioiL- n Individuals 511,122 

o Contributions t^)in Political ('ommittees 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 

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 pnpi^ed amount of 

apparent prohibited contributions received by TFC totaled $6^^. 

In response to the Interim Audit Report, TFC refunded Imnp . ble contributions 

totaling $5,450 and disgorged tiie balance of $1.255J^|^.S. lrea«^' 

(For more detail, see p. 4.) .^r ^ 

Finding 2. Misstatement of Financial^gtivity 

During audit fieldwork, a comparison of TFC's repi ' ^tivity with its bank records 

revealed a misstatement of disburserngits and ending t.,«i.Mi-on-hand in 2009. TFC 

understated disbursements by $9,286^^' '•'•stated emliiiL' c.i-li-on-hand by $10,259. 

In response to the Interim Audit Report, W'L uii.eiuieJ iis dis^sure reports to correct 

the misstatements. ^ 

(For more detail, see p fv) ^ 

4r 
Part IV 

Findings and Recommendations 

I 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 amoimt of 

apparent prohibited contributions received by TFC totaled $6,7(^n^^ 

In response to the Interim Audit Report,TFC refunded 14j^^g^sible contributions 

totaling $5,450 and disgorged the balance of $1,255 to tH^U.S.^^&ury. 

Legal Standard ^ 

A. Receipt of Prohibited Corporate Contributiiiiis. PdUtical campaigff^ 

accept contributions made from the general tfc.i^iir\ iiindsfflcorporations. ^^s 

prohibition applies to any type of corporation inchitli 'Son-stock corporation, an 

incorporated membership organizaticm, and an incorj , ji! cooperative. 2 U.S.C. 

§441b. ^ 

B. Definition of Limited Liability Con^any?- .\ liiiyted li.ihilii> company (LLC) is a 

business entity recognized as an LLC und&the^a^^ ^ ol '.he .state in which it was 

established. 11 CFR §110.lfL!ji i^ ^' 

C. Application of^.iiniis and Prohibitions^I.I.C Contributions. A contribution 

from an LLC is subjec: iii eon*' limits ai:i I'prohibitions, depending on several 

factors, as e\pltiin«-ii bekn 

1. Ijrf' .1- \\\x\ ' p. itmg|Contribution is considered a contribution from a 

p:ii tnership n • : C cRfuK^e^ lo be treated as a partnership under Intemal 

^ Kei Jime ServiCw ^ly^) tax niL*^, or if it makes no choice at all about its tax status. 

I or ihe 2010 electnMi. a pa^ership contribution may not exceed $2,400 per 

cant J per elect ic^.i, and it must be attributed to each lawfril partner. 11 CFR 

§110. \ . (h.,(e)jiiui (g)(2). 

2. LLC as C otpoi.iiilK. The contribution is considered a corporate contribution— 

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

under IRS ni?^s, 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). 

£. 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: A. 

• retum the contribution to the contributor without de^ siung it; or 

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

2. If the committee deposits the questionable contril^)9on,^i / not spend the 

funds and must be prepared to refund them. I: iia ^ fhercx^ > *naintain sufficient 

funds to make the refimds or establish a seD|^-.iie^cbunt in >laig n 

depository for possibly illegal contributig^^ 11 CFR §103.3(h,^ "• ^ 

3. The committee must keep a written rei.-oi d e\|ilaini^why the conira^^n may 

be prohibited and must include this infonii:i:iiin wh^h^orting the ^rceipt of the 

contribution. 11 CFR §103.3(b)(5). ^ 

4. Within 30 days of the treasurd^ receipt of the qtiCNi umable contribution, the 

committee must make at least • ' sn or oral reqire.<ii foj: evidence that the 

contribution is legal. Evidence u^icgeK,.jr> -eludes, toi j^nple, a written 

statement from the contributor expl.ii:!i..'- 'A' A i!:e conl^bution is legal or an oral 

explanation that :-jeo:i!jd by the I'oii^'ittee injuiijiiioi.ii'.dum. 11 CFR 

§103.3(b)(l). V 

5. Within th.--.- ^I'.ays, 'hj committee ^ast either: 

• confimi i::j,L'u.ility ^the contribu^bifor 

• refimd the coiip i^^^ion lii'tiij ,.01111 jiiutor and note the refund on the report 

)erK • wlikli'.heijftmdwasmade. 11 CFR §103.3(b)(1) and 

X5). 

F. Reliiiiil iir Disgorge ^\\\ stionalili- Contributions. If the identity of the original 

contributor i -swn , the Cf.itmittee must either refund the funds to tiie source of the 

original contiii>-..lit-:i or pa> the fiinds to the U.S. Treasury. AO 1996-5. 

Facts and Analy 

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 ainount 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 tfie remaining $1,255 ($6,705 - $2,400 - $3,050) from 

the sample estimate. 

B. Interim Audit Report & Audit Division Recommendation 

This matter was discussed with TFC representatives at the exit conference and they were 

provided a schedule of the apparent prohibited contributions. 

The Interim Audit Report recommended that TFC provide evidence demonstrating that 

the contributions in question were made with permissible funds, make the necessary 

refunds or disgorge to the U.S. Treasury the impermissible amou^ 

C. Committee Response to Interim Audit Report y ^ 

TFC Counsel noted that the Interim Audit Report does the amount, $1,255, 

with any particular contributions, making it impossible^^the Coxi^ttee to demonstrate 

that they were made with permissible fimds. He fiug^f^^ptbd that - : impermissible 

amount may have been less. 

TFC disgorged the remaining impermissible funiU. i.,255.^t^e U.S. Trea^ny. 

I Finding 2. Misstatemen^f Financial Activity 

During audit fieldwork, a comparison of^C's : "jd .leiiv^^ with its bank records 

revealed a misstatement ofdi.O.nursements and dKcling i :i^h-on-hand in 2009. TFC 

understated disbursenis^itN h> S0.286 and ovji stated encKg cash-on-hand by $10,259. 

In response to the^lnieriin \iidii Report, TFC a^j^ded its disclosure reports to correct 

the misstatements. • 

Legal Standard 

Contenmof Reports. lach ^ort must disclose: 

• the amo • f cash-on id at the beginning and end of the reporting period; 

• the total afSHiuiii ofrecgpts for the reporting period and for the election cycle ; 

• the total amo^'iiii oi ili^iursements for the reporting period and for the election cycle; 

and 

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

(4) and (5). 

^ TFC's Counsel provided copies of the front and back for 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 Recorj^""' 1 "discrepancy 

Beginning Cash $2,021 $'^^ 1 $9 

Jtr Overstated 

Receipts $251,202 ^^,238 

A \^ 

$964 

^ 1 verstated 

Disbursements $150,456 ^ $159,742 -9^86 

U .-.^Jited 

Ending Cash $102,767 Jfo,259 

Overstated 

The understatement of disbursements w^is. 

• Disbursements not reported ^ 

• Unexplained difference T Y 

Sum of Repor^i" \djusl ments » 

\ 

of the lolloivini^: 

r ^ $ 9,179 

107 

F $ 9,286 

In 2009, TFC ovef-i=iied e:!ainf eiish by $10,25"^J iieie to tfie differences noted above. 

B. Intel iiii^Tirnii Ri pon^- \u(lil Division Recommendation 

This ni|^^was diS6 -- ana^expl.iined to the TFC representatives after the Exit 

Con fere:U J ^ 

The Inten . ''it Report reeommended that TFC amend its reports to correct the 

misstatemen - ' i 2009 and amend its most recently filed report to correct the cash-onhand balance iiiijxpkui.ition 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.