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 

the threshold 

requirements for 

substantial compliance 

with the 

determin 

com 

tiie 

prohibit! 

disclosure 

of the Act. 

Future Actioi 

The Commission miy 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign 

Paul Tonko for Congress is 

Paul David Tonko, Democ 

Representatives from thi 

headquartered in Alb^^R^w 

the chart on Camn 

campaign committee for 

didate for the U.S. House of 

York, 21''* District, and is 

more information, see 

Financia 

• Receipts 

Contributions 

o ^@otributions fro 

;es 

o umQT 

Total 

Disburs^ents 

o Opera^g Expenditures 

o Other O^j^^sements 

1 Disbi^raements 

$ 511,122 

476,034 

318 

$ 987,474 

$ 816,435 

13,654 

$ 830,089 

F^r^ngs and Recommendations (p. 3) 

• Receipt of Prohibited Contributions (Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

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 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Campaign 

Campaign Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recomn^^atid|LS 

Finding 1. Receipt of Prohibited Contributio 

Finding 2. Misstatement of Financial Activity 
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 permits the Commission to 

conduct audits and field investigations of any political covamine^^t is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit uncj^mi^kibsection, 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. 

elected committees to 

shold requirements 

Scope of Audit 

Following Commission-approved procedure: 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions; 

2. the receipt of contributions from ^^bited sources; 

3. the disclosure of contributions rec^^^ 

4. tiie disclosure of individual contribu^s 

5. the consistency between reported figuil|s aii 

6. the completeness % 

7. other committee g^mtio^^cessary to me review. 

risk 

ion and npne of employer; 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

Date of Registration 

Audit Coverage January 1,200^ December 31,2010 

Headquarters 

Bank Information 

Bank Depositories 

Bank Accounts 

Treasurer 

Treasurer When Audit Was Conducted 

Treasurer During Period Covered by Audit 

Management Information 

Attended Commission Campaign Fin 

Seminar 

• Who Handled Accounting and 

Recordkeeping Tasks 

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 vt^mted amount of 

apparent prohibited contributions received by TFC totaled 

In response to the Interim Audit Report, TFC refunded 

totaling $5,450 and disgorged the balance of $1,255 

(For more detail, see p. 4.) 

Finding 2. Misstatement of 

During audit fieldwork, a comparison of TFC's rep 

revealed a misstatement of disbursenients and ending 

understated disbursements by $9,286 ^l^verstated endf 

In response to the Interim Audit Report, 

the misstatements. 

(For more detail, see 

ble contributions 

jtivity 

with its bSik records 

pn-hand in 2009. TFC 

sh-on-hand by $10,259. 

its dis^Tsure reports to correct 
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 proiected amount of 

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

In response to the Interim Audit Report,TFC refunded 14 

totaling $5,450 and disgorged the balance of $1,255 to 

Legal standard 

A. Receipt of Prohibited Corporate Contr^j^ns. PoUtical campai 

accept contributions made from the general treas'^^imds^^rporations 

prohibition applies to any type of corporation inclu^^^^n-stock corpori 

sible contributions 

ury. 

incorporated membership organizati(^, and an incorp< 

§44 lb. ' 

% 

B. Definition of Limited Liability Corapan 

business entity recognized as an LLC und 

established. 11 CFR m^^mX) 

cooperative. 2 U.S.C. 

lited liaMty company (LLC) is a 

Ite in which it was 

C. Application 

from an LLC is subjec 

factors, as ^^^^^^^ ^ 

1. Ll^^^^^i p 

and wohibitions 

limits 

^C Contributions. A contribution 

Prohibitions, depending on several 

cane 

§110.1i 

LLC as C( 

and is barred'*^ 

under IRS 

ontributiBh is considered a contribution from a 

C cl^^sj o be treated as a partnership under Intemal 

) ta^r^Ps, or if it makes no choice at all about its tax status, 

a parmership contribution may not exceed $2,400 per 

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

(g)(2). 

The contribution is considered a corporate contribution— 

er the Act—if the LLC chooses to be treated as a corporation 

, 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 d^^fi ^ it; or 

• deposit the contribution (and follow the steps l>e^^L 11 CFR § 103.3(b)( 1). 

2. If the committee deposits the questionable contrib^on^^^y not spend the 

funds and must be prepared to refund them. Itpr ^ theref^^^aintain sufficient 

funds to make the reftinds or establish a se^g^^^dbunt in 2^^||paign 

depository for possibly illegal contributi^^ 11 CFR §103. • 

3. The committee must keep a written re^^i^^^plain^ why the con^^^n may 

be prohibited and must include this infon^^^>^^E^porting the ^eipt of the 

contribution. 11 CFR §103.3(b)(5). ^ 

Within 30 days of the treasure^ receipt of the ^^^ionable contribution, the 

committee must make at least ^^^l^ten or oraJ x^m&X^ evidence that the 

contribution is legal. Evidence i^^^^y^cludes, fi^p^nple, a written 

statement from the contributor exmainin^^^^e conmbution is legal or an oral 

explanation that iajcecprded by the%)nMttee^^^emorandum. 11 CFR 

4. 

§103.3(b)(l). 

Within tiiesi 

• confi; 

ommittee i^st either: 

contribut^l^or 

utor and note the refund on the report 

was made. 11 CFR §103.3(b)(l) and 

F. RefU^^QT Disgorge 

contribut(^^^K)wn, the c| 

original conm^tiop. or pa) 

Facts and Ana 

stionJBile Contributions. If the identity of the original 

ittee must either refund the funds to tiie source of the 

e fimds to tiie U.S. Treasury. AO 1996-5. 

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 

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 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 amoi 

C. Committee Response to Interim Audit Report 

TFC Counsel noted that the Interim Audit Report does ncg 

with any particular contributions, making it impossibl 

that they were made with permissible funds. He fug^s^p 

amount may have been less. 

TFC disgorged the remaining impermissible 

Finding 2. Misstatement^of Financi^Mctivity 

the amount, $ 1,255, 

ttee to demonstrate 

impermissible 

Summary 

During audit fieldwork, a comparison of 

revealed a misstatement 

understated disburse: 

)ursements 

^286 and o 

In response to the 

the misstatements. 

Legal 

y with its bank records 

n-hand in 2009. TFC 

ng cash-on-hand by $10,259. 

Ued its disclosure reports to correct 

f Reporti 

f cash-on-' 

it of 

Conte 

• the ami 

• the total 

ach ^ort must disclose: 

d at the beginning and end of the reporting period; 

ts for the reporting period and for the election cycle ; 

the total amo^^f dy;^ursements for the reporting period and for the election cycle; 

and m 

certain transaction that 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 Recoi^^^ ''SDiscrepancy 

Begitming Cash $2,021 $9 

. Overstated 

Receipts $251,202 % $964 

^^^verstated 

Disbursements $150,456 W $159,742 

% A . 

"^|9,286 

Un^^e d 

Ending Cash $102,767 ^0,259 

Overstated 

The understatement of disbursements 

• Disbursements not reported 

• Unexplained diffi^^e 

Sum of Repong|^^^||»tments 

In 2009, TFC ovefstSl^l^din^sh by $10,2 

^ 

epo 

was dis^^jd an( 

B. Interj 

This mi 

Confis^ace 

9,179 

107 

$ 9,286 

e to the differences noted above. 

Recommendation 

ained to the TFC representatives after the Exit 

The Interii^^dit Report ^ommended that TFC amend its reports to correct the 

misstatement^^2009 an^nend its most recently filed report to correct the cash-onhand balance w^^ g exp^nation 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. 
"Svoboda, Brian (Peridns To "pwilkerson@fec.gov" <pwilkerson@fec.gov>, "Neville, 

Coie)" Christine (Perkins Cole)" <CNeville@perklnscoie.com> 

<BSvoboda@peridnscole.oom cc "mkuest@fec.gov" <mkuest@fec.gov> 

> 

bcc 07/09/2012 10:03 AM Subject RE: Tonko for Congress (Draft Final Audit Report) 

Dear Ms. Wilkerson and Mr. Kuest: 

Thank you for following up regarding Paul Tonko for Congress's response to the Draft Final Audit Report. 

The Committee has no further comment on the report, beyond that already made in response to the Exit 

Conference and the Interim Audit Report, and is not seeking a hearing before the Commission. Please 

do not hesitate to let me know if you need anything further in this matter. 

Very truly yours, 

=B. 

Brian G. Svoboda | Perkins Coie LLP 

700 Thirteenth Street N.W. 

Washington, DC 20005-3960 

PHONE: 202.434.1654 

FAX: 202.654.9150 

E-iVIAIL: BSvobocla@perkinscoie.com 

IMPORTANT TAX INFORi\/IATION: Tliis communication is not intended or written by Perkins Coie LLP to be used, and cannot be 

used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code 

of 1986, as amended. 

NOTICE: This communication may contain privileged or other confidential information. If you have received it in error, please advise 

the sender by reply email and immediately delete the message and any attachments without copying or disclosing the contents. 

Thank you. 

From: pwllkerson@fec.gov [mailto:pwilkerson@fec.gov] 

Sent: Monday, July 09, 2012 9:25 AM 

To: Svoboda, Brian (Perkins Coie); Neville, Christine (Perkins Coie) 

Cc: mkuest@fec.gov 

Subject: Tonko for Congress (Draft Final Audit Report) 

Good morning Brian and Christine, 

A Draft Final Audit Report (DFAR) from the Commission was mailed to the Tonko Committee and a 

courtesy copy to the Counsel on 6/14/12 with a response date by 7/2/12. Do you know if the Tonko 

Committee received their copy of the DFAR? If so, please advise the committee of the above response 

date, which is now past due as of 7/2/12. Please let me know as soon as possible the status of the 

committee's response to the DFAR.. 

Thank you! 

Pamela Wilkerson, Auditor 

Federal Election Commission 

Office of Compliance-Audit Division 

999 E. Street NW, Rm. 736 

Washington, DC 20463 

Office: (202)694-1348 

Fax: (202)219-3483 

Email: pwilkerson@fec.gov 

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with Treasury Department and IRS 

regulations, we inform you that, unless expressly indicated othenA/ise, any federal tax advice contained in 
this communication (including any attachments) is not intended or written by Perkins Coie LLP to be 

used, and cannot be used by the taxpayer, for the purpose of (i) avoiding penalties that may be imposed 

on the taxpayer under the Internal Revenue Code or (ii) promoting, marketing or recommending to 

another party any transaction or matter addressed herein (or any attachments). 

********* * 

NOTICE: This communication may contain privileged or other confidential information. If you have 

received it in error, please advise the sender by reply email and immediately delete the message and any 

attachments without copying or disclosing the contents. Thank you.