Interim Audit Report of the 

Audit Division on tlie 

Friends of Todd Young 

February 12. 2009 - December 31, 2010 

Why the Audit 

Was Done 

Federal law pennits 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 

Conunission generally 

conducts such audits 

when a conmiittee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the Act.^ The audit 

determines whether the 

conunittee 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 respea to any of the 

matters discussed in this 

report. 

About the Campaigii (p. 2) 

Friends of Todd Young is the principal campaign committee for 

Todd C. Young, Republican candidate for the U.S. House of 

Representatives from the state of Indiana, 9**^ District, and is 

headquartered in Bloomington, Indiana. For more information, 

see the chart on the Campaign Organization, p. 2. 

Financial Activity (p. 2) 

Receipts 

o Contributions from Individuals $ 1,708,269 

o Contributions from Other 

Political Conmiittees 233,843 

o Transfers from Authorized 

Committees 14,702 

o Offsets to Operating Expenditures 7,404 

Total Receipts $ 1,964,218 

• Disbursements 

o Operating Expenditures 

o Contribution Refunds 

o Contributions to Political 

Committees 

Total Disbursements 

$ 1,926,326 

18,200 

5,000 

$ 1,949,526 

Findings and Recommendations (p. 3) 

• Receipt of Apparent Prohibited Contributions 

• Receipt of Contributions in Excess of the Limit 

• Failure to File 48-Hour Notices 

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

Audit Division on the 

Friends of Todd Young 

February 12, 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. Summaries 

Findings and Reconunendations 3 

Part IV. Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 4 

Finding 2. Receipt of Contributions in Excess of the Limit 7 

Finding 3. Failure to File 48-Hour Notices 10 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Friends of Todd Young (FOTY), 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 Conunission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, this audit examined: 

1. the receipt of excessive contributions and loans; 

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. 
Part n 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration February 20,2009 

• Audit Coverage February 12,2009 - December 31,2010 

Headquarters Bloomington, Indiana 

Banic Information 

• Bank Depositories One 

• Bank Accounts One checking account 

Treasurer 

• Treasurer When Audit Was Conducted Larry Ness 

• Treasurer During Period Covered by Audit Connie K. Nass 

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 @ February 12,2010 $ 0 

Receipts 

o Contributions from Individuals ' 1,708,269 

0 Contributions from Other Political 

Committees 233,843 

0 Transfers from Authorized Committees 14,702 

o Offsets to Operating Expenditures 7,404 

Total Receipts $ 1,964,218 

Disbursements 

o Operating Expenditures 1,926,326 

o Contribution Refunds 18,200 

o Contributions to Political Committees 5,000 

Total Disbursements $ 1,949,526 

Cash-on-hand @ December 31,2010 $ 14,692 
Part III 

Summaries 

Finding and Recommendation 

Finding 1. Receipt of Apparent Prohibited Contributions 

During audit fieldwork, a review of contributions revealed that FOTY received 24 

apparent prohibited contributions totaling $19,700. FOTY has refunded $3,7S0 of the 

$19,700 in apparent prohibited contributions, albeit in an untimely manner. The Audit 

staff recommends that FOTY demonstrate that these contributions were made with 

permissible fiinds or were refunded in a timely manner. Absent such demonstration, 

FOTY should resolve the remaining $15,950 in contributions either through refund to the 

contributors or disgorgement to the U.S. Treasury. (For more detail, see p. 4.) 

Finding 2. Receipt of Contributions in Excess of the Lindt 

During audit fieldwork, the Audit staff reviewed contributions from individuals. This 

review indicated FOTY received apparent excessive contributions totaling $94,854. 

These errors occurred as a result of FOTY not resolving the excessive portion of 

contributions either by forwarding a presumptive letter to its contributors or issuing a 

refund in a timely manner. The Audit staff recommends that FOTY provide 

documentation demonstrating that these contributions were not excessive or, if excessive, 

were resolved in a timely manner. Absent such documentation, FOTY should resolve the 

apparent excessive contributions either through refund, disgorgement to the U.S. 

Treasury or by issuance of presumptive redesignation or reattribution letters. 

(For more detail, see p. 7.) 

Finding 3. Failure to File 48-Hour Notices 

During audit fieldwork, a review of contributions received during tfae 48-hour filing 

periods revealed that FOTY failed to file 48-hour notices for 51 contributions totaling 

$75,700. Most of the unfiled notices were for general election contributions. The Audit 

staff reconunends that FOTY provide evidence that it filed the 48-hour notices in a timely 

manner or submit any written comments it considers relevant. 

(For more detail, see p. 10.) 
Part IV 

Findings and Reconmiendations 

I Finding 1. Receipt of Apparent Prohibited Contributions | 

Summary 

During audit fieldwork, a review of contributions revealed that FOTY received 24 

apparent prohibited contributions totaling $19,700. FOTY has refunded $3,750 of the 

$19,700 in apparent prohibited contributions, albeit in an untimely manner. The Audit 

staff recommends that FOTY demonstrate that these contributions were made with 

permissible funds or were refunded in a timely manner. Absent such demonstration, 

FOTY should resolve the remaining $15,950 in contributions either through refund to the 

contributors or disgorgement to the U.S. Treasury. 

Legal Standard 

A. Receipt of Proliibited Contributions - General Proldbition. Candidates and 

committees may not accept contributions (in the form of money, in-kind contributions or 

loans) from the general treasury fimds of corporations. This prohibition applies to any 

incorporated organization, 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 Parmership. The contribution is considered to be from a parmership if the 

LLC chooses to be treated as a parmership under Intemal Revenue Service (IRS) 

tax rules, or if it makes no choice at all about its tax status. A parmership 

contribution may not exceed $2,400 per candidate, per election, and it must be 

attributed to each lawfid partner. 11 CFR §110.1(a), (b), (e) and (g)(2). 

2. LLC as Corporation. The contribution is considered to be from a coiporation— 

and is barred under the Aa—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 to be 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 the contribution, an LLC shall provide to the recipient conunittee 

information on how the contribution is to be attributed and affirm that it is eligible to 

make the contribution. 11 CFR § 110.1(g)(5). 
E. Organizations Financing. Organizations that are not political committees under the 

Act that make contributions and expenditures, but do not qualify as political committees 

under 11 CFR 100.5, must demonstrate through a reasonable accounting method that the 

organization has received sufficient funds subject to the limitations and prohibitions of 

the Act to make such contribution, expenditure or payment. 11 CFR § 102.5(b) 

F. Questionable Contributions. If a conunittee 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 tfae steps below). 11 CFR § 103.3(b)(1). 

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

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

funds to make the refiuids 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 tfae contribution may 

be profaibited and must include tfais information wfaen reporting tfae receipt of the 

contribution. 11 CFR § 103.3(b)(5). 

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

conunittee must make at least one written or ord request for evidence tfaat tfae 

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

statement from tfae contributor explaining wfay tfae contribution is legal or an oral 

explanation that is recorded by the conunittee in a memorandum. 

llCFR§103.3(b)(l). 

5. Witfain tfaese 30 days, tfae committee must either: 

• Confirm the legality of tfae contribution; or 

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

covering tfae period in wfaicfa the refund was made. 11 CFR § 103.3(b)(1). 

Any contribution tfaat appears to be illegal or is deposited into a campaign 

depository sfaall not be used for any disbursements by the political committee 

until the contribution has been determuied to be legal. Tfae political conunittee 

must eitfaer establisfa a separate account in a campaign depository for such 

contributions or maintain sufficient fimds to make all sudi refunds. 11 CFR 

§103.3(b)(4). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staffs sample review of contributions received by 

FOTY identified contributions tfaat appeared to be from profaibited sources. As a result. 

Audit staff performed a review of all deposit batcfaes for profaibited contributions. Tfais 

full review identifred tfae following possible profaibited contributions: 

• 16 cfaecks from LLCs totaling $14,650; and 

• eight checks from corporations totaling $5,050. 
For the contributions from corporations, the Audit staff verified the corporate status of 

the entities, as of tfae date of the contribution, with the various Secretary of State offices 

and a registered agent of a company. For contributions from the LLCs, FOTY provided 

no documentation tfaat stated whetfaer tfae companies elected to be treated as a partnersfaip 

or corporation for tax purposes. 

FOTY did not maintain a separate account for the possible prohibited contributions. A 

review of cash balances determined tfaat FOTY did not maintain sufficient fimds to make 

refunds of tfae possible prohibited contributions.^ 

Prior to audit fieldwork, FOTY sent out letters to contributors regarding tfae 

permissibility and allocation of tfae possible profaibited LLC, LLP and corporate 

contributions. Specifically, FOTY sent tfaese letters on Marcfa 11,2011 and May 6,2011. 

Of the 24 possible prohibited contributions totaling $19,700 identified by the Audit staff, 

FOTY refimded contributions from corporations totaling $3,750; however, these refunds 

were untimely. Therefore, the remaining amount of possible prohibited contributions is 

$15,950 ($19,700 - $3,750). As of this report, evidence demonstrates tfaat three of the 

refimd checks totaling $2,750 have not been negotiated. 

B. Interim Audit Report & Audit Division Recommendation 

Tfae Audit staff discussed tfais matter witfa FOTY representatives at tfae exit conference 

and provided a schedule of the apparent prohibited contributions identified in tfae review. 

FOTY representatives did not have any comments on tfais matter. However, a FOTY 

representative stated tfaat tfaey were working on obtaining more documentation. 

In response to tfae exit conference, FOTY representatives provided some copies of letters 

tfaat faad been sent to contributors requesting mformation about tfae permissibility of tfaeir 

contribution. However, tfae conunittee sent all the letters subsequent to the 2010 election 

cycle and the Audit staff received no fiuther information relating to the 24 possible 

prohibited contributions it identified. 

Tfae Audit staff reconunends that, within 30 calendar days of service of this report, 

FOTY: 

• Provide evidence demonstrating that the remaining 20^ contributions in question 

were made with permissible funds (for contributions in question from LLCs, 

FOTY should provide a statement from each entity explaining its tax treatment or 

a copy of IRS Form 8832); 

• Refimd $15,950, the remaining amount of apparent prohibited contributions tfaat 

eitfaer faave not been refimded or faave not received a statement or explanation 

from tfae contributor attesting to tfae permissibility of tfae contributions (FOTY 

sfaould provide evidence of such refiinds, such as copies of the front and back of 

negotiated refimd checks, or evidence that the contribution was permissible); 

^ FOTY's primary election was on 5/4/2010. The cash-on-hand analysis showed that, on 4/28/2010, funds 

were not sufficient to make the necessary refunds. 

^ It should be noted tfaat one of the contributions was only partially refunded. 
• Disgorge tfae remainmg fimds ($15,950) to tfae U.S. Treasury and provide 

evidence of sucfa disgorgement; or 

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

the contributions requiring refunds on Schedule D (Debts and Obligations) until 

funds become available to satisfy diis obligation. 

I Finding 2. Receipt of Contributions in Excess of the Limit | 

Summary 

During audit fieldwork, the Audit staff reviewed contributions from individuals. This 

review indicated FOTY received apparent excessive contributions totaling $94,854. 

Tfaese errors occurred as a result of FOTY not resolving tfae excessive portion of 

contributions eitfaer by forwarding a presumptive letter to its contributors or issuing a 

refund in a timely manner. Tfae Audit staff recommends tfaat FOTY provide 

documentation demonstrating tfaat tfaese contributions were not excessive or, if excessive, 

were resolved in a timely manner. Absent such documentation, FOTY should resolve the 

apparent excessive contributions either tfarough refund, disgorgement to the U.S. 

Treasury or by issuance of presumptive redesignation or reattribution letters. 

Legal Standard 

A. Authorized Committee Limits. For the 2010 election, an authorized committee may 

not receive more tfaan a total of $2,400 per election from any one person. 

2 U.S.C. §441a(a)(l)(A), 11 CFR §§110.1(a) and (b) and 110.9. 

B. Handling Contributions That Appear Excessive. If a conunittee receives a 

contribution tfaat appears to be excessive, the committee must either: 

• Retum tfae questionable cfaeck to tfae donor; or 

• Deposit tfae contributions and keep enough money on hand to cover all potential 

refimds until tfae legality of tfae contribution is establisfaed. If deposited, tfae 

committee must seek a reattribution or a redesignation of tfae excessive portion, 

following tfae instmctions provided in tfae Commission regulations (see below for 

explanations of reattribution and redesignation). If tfae committee does not 

receive a proper reattribution or redesignation witfain 60 days of receiving tfae 

excessive contribution, refund tfae excessive portion to the donor. 

11 CFR §103.3(b)(3), (4) and (5). 

C. Joint Contributions. Any contribution made by more than one person, except for a 

contribution made by a partoersfaip, sfaall include tfae signature of eadi contributor on tfae 

cfaeck, money order or otfaer negotiable instrument or in a separate writing. A joint 

contribution is attributed equally to eadi donor unless a statement indicates tfaat tfae funds 

should be divided differently. 11 CFR §110.1(k)(l) and (2). 

D. Reattribution of Excessive Contributions. Commission regulations permit 

conunittees to ask donors of excessive contributions (or contributions that exceed the 

conmiittee's net debts outstanding) whether tfaey faad intended tfaeu contribution to be a 
joint contribution from more tfaan one person and wfaetfaer tfaey would like to reattribute 

tfae excess amount to anotfaer contributor. The conimittee must inform the contributor 

tfaat: 

1. The reattribution must be signed by botfa contributors; 

2. Tfae reattribution must be received by tfae committee witfain 60 days of tfae 

committee's receipt of tfae original contribution; and ' 

3. The contributor may instead request a refund of the excessive amount. 

llCFR§110.1(k)(3). 

Within 60 days of receiving the excessive contribution, the coinmittee must either receive 

tfae proper reattribution or refund tfae excessive portion to tfae donor. 11 CFR 

§§103.3(b)(3) and 110.1(k)(3)(ii)(B). Furtfaer, a political conunittee must retain written 

records conceming tfae reattribution in order for it to be effective. 11 CFR §110.1(1)(5). 

Notwitfastanding tfae above, any excessive portion of a contribution tfaat was made on a 

written instmment imprinted witfa tfae names of more tfaan one individual may be 

attributed among tfae individuals listed unless instmcted otfaerwise by the contributor(s). 

The conunittee sfaall notify eadi contributor: 

1. How tfae contribution was attributed; and 

2. That the contributor may instead request a refund of tfae excessive amount. 

llCFR§110.1(k)(3)(ii)(B). 

E. Redesignation of Excessive Contributions. The committee may ask the contributor 

to redesignate the excess portion of the contribution for use in anotfaer election. Tfae 

committee must inform tfae contributor tfaat: 

1. The redesignation must be signed by the contributor; 

2. The redesignation must be received by the conunittee within 60 days of the 

committee's receipt of the original contribution; and 

3. The contributor may instead request a refund of the contribution. 

llCFR§110.1(b)(5)(ii)(A). 

Witfain 60 days of receiving the excessive contribution, the committee must either receive 

tfae proper redesignation or refimd tfae contribution to tfae donor. 11 CFR § 103.3(b)(3) 

and 110.1(b)(5)(ii)(A). Further, a political comniittee must retain written records 

conceming the redesignation in order for it to be effective. 11 CFR § 110.1(1)(5). 

When an individual makes an excessive contribution to a candidate's authorized 

committee, tfae campaign may presumptively redesignate the excessive portion to the 

general election if the contribution: 

1. Is made before that candidate's primary election; 

2. Is not designated in writing for a particular eleaion; 

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

4. As redesignated, does not cause the contributor to exceed any otfaer contribution 

limit. 
Tfae committee is required to notify tfae contributor of tfae redesignation within 60 days of 

tfae treasurer's receipt of the contribution, and must offer the contributor tfae option to 

receive a refund instead. 11 CFR 110.1(b)(5)(i)(D)(ii). 

Facts and Analjrsis 

A. Facts 

During audit fieldwork, tfae Audit staff utilized a combination of sample testing and 

focused reviews to identify apparent excessive contributions from individuals totaling 

$94,854. Tfais total is comprised of $94,554^, tfae projected dollar value of tfae sample 

errors and $300, tfae result of a focused review of Uie remaining contributions. Tfaese 

apparent excessive contributions were tfae result of FOTY not resolving tfae excessive 

portion of contributions by forwarding a presumptive letter to-its contributors informing 

tfaem how tfaeir contribution was redesignated/attributed or refunding tfae excessive 

contribution. FOTY untimely resolved excessive contributions totaling $11,820 prior to 

audit notification by issuing refunds. 

B. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed this niatter at the exit conference and provided FOTY 

representatives with a schedule of tfae apparent excessive contributions. Tfae 

representatives asked general questions about presumptive letters and issuance of 

refunds. 

In response to tfae exit conference, FOTY representatives submitted documentation 

relative to the apparent excessive contributions. Tfae Audit staff received copies of three 

refund diedcs, dated in August of 2011 and totaling $550; two of tfaese cfaedcs were not 

negotiated. The Audit staff also received copies of presumptive letters dated August 5, 

2011, totaling $21,450. 

As a result of tfae refunds issued prior to audit notification ($11,820), tfae refimds issued 

m response to tfae exit conference ($550) and tfae presumptive letters sent to contributors 

in response to tfae exit conference ($21,450), tfae remaining excessive contributions 

FOTY sfaould address total $61,034 ($94,854 - $11,820 - $550 - $21,450). 

The Audit staff reconunends that, witfain 30 calendar days of service of tfais report, FOTY 

provide documentation demonstrating that contributions of $61,034 are not excessive. 

Absent such a demonstration, FOTY should resolve these excessive contributions by 

eitfaer: 

• sending presumptive redesignation/reattribution letters informing contributors 

about how the excessive portion of their contributions was resolved and offering 

a refund (copies of tfaese letters and verification tfaat tfae letters were sent must be 

provided to tfae Audit staff); 

^ The sample error amount was projected using a Monetary Unit Sample with a 95 percent confidence level 

plus the result of a focused review of contributions not included in the sample population. The sample 

estimate could be as low as $53,689 or as high as $135,419. 
10 

• refimding tfae excessive portion of eacfa contribution and providing evidence of 

sucfa refimds (Evidence sfaould include copies of tfae front and back of negotiated 

refund diecks). If funds are not available to make the necessary refimds, FOTY 

sfaould disclose tfae contributions requiring refimd on Schedule D (Debts and 

Obligations) until fimds become available; or ^ 

• making a payment of $61,034 to the U.S. Treasury and providing evidence of 

such payment. 

Should documentation be presented demonstrating that any review exception is not 

excessive, the Audit staff will make appropriate revisions to the excessive contribution 

amount. 

[Findings. Failure to File 48-Hour Notices | 

Summary 

During audit fieldwork, a review of contributions received during the 48-hour filing 

periods revealed that FOTY failed to file 48-faour notices for 51 contributions totaling 

$75 JOO. Most of tfae unfiled notices were for general election contributions. Tfae Audit 

staff recommends tfaat FOTY provide evidence tfaat it filed tfae 48-faour notices in a timely 

manner or submit any written comments it considers relevant. 

Legal Standard 

Last-Minute Contributions (48-Hour Notice). Campaign committees must file special 

notices regarding contributions of $1,0CX) or more received less than 20 days but more 

tfaan 48 hours before any election in whicfa tfae candidate is running. Tfais rule applies to 

all types of contributions to any autfaorized committee of tfae candidate, mcluding: 

• Contributions from tfae candidate; 

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

• Endorsements or guarantee of loans from banks. 11 CFR § 104.5(f) 

Facts and Analysis 

A. Facts 

The Audit staff reviewed contributions of $1,000 or more received during tfae 48-faour 

notice filmg period for tfae primary election (04/15/2010-05/01/2010) and for tfae general 

election (10/14/2010 -10/30/2010). FOTY failed to file 48-faour notices for 51 

contributions totaling $75,700, as summarized below. 

Primary General Total 

48-Hour Notices Not Filed $2^00 

(2) 

$73,200 

(49) 

$75,700 

(51) 

Tfae contributions for wfaidi 48-faour notices were not filed were from 41 individuals for 

$60,200, eigfat political conunittees for $13,500 and two LLCs for $2,000. 
11 

B. Interim Audit Report & Audit Division Recommendation 

This matter was discussed with FOTY representatives at the exit conference. Tfae Audit 

staff provided a schedule of tfae contributions for wfaicfa 48-faour notices were not filed. 

FOTY representatives did not faave any comments on tfais matter. 

Tfae Audit staff reconunends tfaat, witfain 30 calendar days of service of tfais report, FOTY 

provide evidence that tfae 48-faour notices were timely filed or submit any additional 

comments it considers relevant.