FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

December 11, 2008 

MEMORANDUM 

To: Robert W. Biersack 

Press Officer 

From: Wanda J. Thomas l~

Acting Assistant StaflFDirector 

Audit Division 

Subject: Public Issuance ofthe Audit Report on the Joseph Shannon for Congress 

Committee 

Attached please find a copy of the audit report on the Joseph Shannon for Congress 

Committee, which was approved by the Commission on December 3, 2008. 

All parties involved have received informational copies of the report and the report 

may be released to the public December 11,2008. 

Attachment as stated 

cc:	 Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

DSDD Website 
Report of the 

Audit Division on the 

Joseph Shannon for Congress 

Committee 

February 2,2006 - December 31,2006 

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. I The audit 

determines whether the 

committee 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 respect to any ofthe 

matters discussed in this 

report. 

2 U.S.C. §438(b). 

About the Campaign (p. 2)
 

The Joseph Shannon for Congress Committee is the principal
 

campaign committee for Joseph Shannon, Democratic candidate
 

for the U.S. House of Representatives from the state of Illinois,
 

13th Congressional District and is headquartered in Woodridge,
 

Illinois. For more information see the Campaign Organization
 

Chart, p. 2.
 

Financial Activity (p. 2) 

•	 Receipts 

o From Individuals	 $ 137,329 

o From Political Committees	 43,600 

o Candidate Loans & Contribution	 25,729 

o Total Receipts	 $ 206,658 

•	 Disbursements 

o	 Operating Expenditures & Other 

Disbursements $ 206,280 

o	 Total Disbursements $ 206,280 

Findings and Recommendations (p. 3) 

•	 Receipt of Apparent Prohibited Contributions (Finding 1) 

•	 Misstatement of Financial Activity (Finding 2) 

•	 Disclosure of Disbursements (Finding 3) 

•	 Receipts Documentation (Finding 4) 

I 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1
 

Scope of Audit 1
 

Scope Limitation 1
 

Part II. Overview of Campaign
 

Campaign Organization 2
 

Overview of Financial Activity 2
 

Part III. Summaries 

Findings and Recommendations 3
 

Part IV. Findings and Recommendations
 

Finding 1. Receipt of Apparent Prohibited Contributions 4
 

Finding 2. Misstatement of Financial Activity 5
 

Finding 3. Disclosure of Disbursements 7
 

Finding 4. Receipts Documentation 8
 
Part I 

Background 

Authority for Audit 

This report is based on an audit of the Joseph Shannon for Congress Committee (JSCC), 

undertaken by the Audit Division ofthe 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 internal review ofreports filed by selected committees to determine ifthe 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 

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 disbursements, debts and obligations. 

5. The consistency between reported figures and bank records. 

6. The completeness of records. 

7. Other committee operations necessary to the review. 

Scope Limitation 

Although JSCC met the recordkeeping requirements of2 U.S.C. §432(c), it did not maintain 

externally generated documentation such as invoices, bills, or receipts for about 60% of its 

disbursements. The lack ofthese records limited our testing for the proper reporting of debts and 

obligations, personal use of campaign funds and the adequacy of disclosure information such as 

payee, address and purpose of disbursements (See Finding 3). Further, JSCC did not comply 

with the recordkeeping requirement, 11 CFR §102.9(a)(4), which requires committees to 

maintain a copy of contributor checks in excess of $50 (See Finding 4). The lack of these 

records limited the Audit staffs testing of prohibited contributions, the timeliness of deposits, 

the accuracy of election designations and contributor attributions. 
2 

Part II 

Overview of Campaign 

Campaign Organization 

Important Dates Joseph Shannon for Congress Committee 

• Date of Registration February 21, 2006 

• Audit Coverage February 2, 2006 - December 31, 2006 

Headquarters Woodridge, Illinois 

Bank Information 

• Bank Depositories One 

• Bank Accounts One checking account 

Treasurer 

• Treasurer When Audit Was Conducted 

• Treasurer During Period Covered by Audit 

Joseph A. Gyarmathy (inception to present) 

Joseph A. Gyarmathy (inception to present) 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Used Commonly Available Campaign 

Management Software Package 

Yes 

•	 Who Handled Accounting, Recordkeeping Campaign staff 

Tasks and Other Day-to-Day Operations 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand (iiJ February 2, 2006 $ -0­

$ 137,329 

Receipts 

0 From Individuals 

0 From Political Committees 43,600 

0 Candidate Loans & Contribution 25,729 

Total Receipts $ 206,658 

Disbursements 

0 Operating Expenditures & Other Disbursements $ 206,280

Total Disbursements $ 206,280 

Cash on hand @ December 31,2006 $ 378 
3 

Part III 

Summaries 

Findings and Recommendations 

Finding 1. Receipt of Apparent Prohibited Contributions 

The Audit staff identified six contributions totaling $3,350 which appear to be from 

corporations. Inresponse to the interim audit report, JSCC provided copies of refund 

checks it had issued for all six contributions. (For more detail, see p. 4). 

Finding 2. Misstatement of Financial Activity 

A comparison of JSCC reported activity to bank records for 2006 revealed misstatements 

for receipts, disbursements and ending cash on hand. Receipts were overstated by 

$10,162, disbursements overstated by $19,564 and ending cash on hand was understated 

by $17,582. Inresponse to the interim audit report, JSCC noted it is committed to 

amending its reports and detailed its unsuccessful attempt to amend its disclosure reports 

to correct the misstatements. JSCC filed amended reports approximately four months 

after the final audit report was submitted to the Commission for approval which 

materially corrected the misstatements noted above. (For more detail, see p. 5). 

Finding 3. Disclosure of Disbursements 

The Audit staff noted 56 disbursements totaling $160,391 for which disclosure of the 

purpose and/or address was either absent or inaccurate. Inadequate recordkeeping of 

purposes contributed significantly to this problem. Inresponse to the interim audit 

report, JSCC noted it is committed to amending its reports and detailed its unsuccessful 

attempt to amend its reports to correct the disclosure of these disbursements. JSCC filed 

amended reports approximately four months after the final audit report was submitted to 

the Commission for approval which materially corrected the disclosure errors noted 

above. (For more detail see p. 7). 

Finding 4. Receipts Documentation 

JSCC failed to maintain copies of contributor checks, as required, for 35 contributions, 

totaling $30,775. Inresponse to the interim audit report, JSCC stated that an oversight 

resulted in the copies of contributor checks either not being made or the copies 

misplaced. Although having limited success, JSCC will continue to attempt to obtain the 

missing check copies. (For more detail, see p. 8). 
4 

Part IV
 

Findings and Recommendations
 

I Finding 1. Receipt of Apparent Prohibited Contributions 

Summary 

The Audit staff identified six contributions totaling $3,350 which appear to be from 

corporations. In response to the interim audit report, JSCC provided copies of refund 

checks it had issued for all six contributions. 

Legal Standard 

Receipt of Prohibited Contributions - General Prohibition. Candidates and 

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

loans) from the treasury funds of corporations (this means any incorporated organization, 

including a non-stock corporation, an incorporated membership organization, and an 

incorporated cooperative. 2 U.S.c. §441b(a). 

Facts and Analysis 

The Audit staff reviewed all contributions received by JSCC and identified 6 

contributions totaling $3,3502 from corporations. The corporate status of the entities at 

the time the contribution was made was verified with the Secretary of State. 

The Audit staff presented this matter to JSCC's representatives during the exit conference 

along with a schedule ofthe apparent prohibited contributions, copies ofthe contributor 

checks and copies ofthe verifications of corporate status. A discussion of corporations 

ensued and JSCC's representative indicated these items would be rectified. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that JSCC provide evidence that these contributions were 

not prohibited. Absent such evidence, it was recommended that JSCC refund the $3,350 

to the contributors and provide documentation for such refunds (i.e. copies, front and 

back, of each negotiated refund check); or disgorge these funds to the U.S. Treasury. If 

funds were not available to make the refunds, then the refund amount due should have . 

been disclosed on Schedule D until funds became available to make the refunds. 

In its response, JSCC submitted copies ofrefund checks issued for all six prohibited
 

contributions as well as some bank documentation and related refund transmittal
 

letters/emails. The documentation indicated that refunds for three ofthe prohibited
 

contributions ($1,500) had been negotiated. The Audit staff advised JSCC
 

documentation indicating the remaining refunds ($1,850) have been negotiated is still
 

required.
 

This amount could have increased as a result of documentation submitted in response to Finding 4., 

Receipts Documentation; however, to date, no additional documentation has been provided. 
5 

IFinding 2. Misstatement of Financial Activity 

Summary
 

A comparison of JSCC reported activity to bank records for 2006 revealed misstatements
 

for receipts, disbursements and ending cash on hand. Receipts were overstated by
 

$10,162, disbursements overstated by $19,564 and ending cash on hand was understated
 

by $17,582. In response to the interim audit report, JSCC noted it is committed to
 

amending its reports and detailed its unsuccessful attempt to amend its disclosure reports
 

to correct the misstatements. JSCC filed amended reports approximately four months
 

after the final audit report was submitted to the Commission for approval which
 

materially corrected the misstatements noted above.
 

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 A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(1), (2), (3), (4) and (5). 

Facts and Analysis
 

The Audit staff reconciled JSCC's reported financial activity to its bank records for 2006.
 

The following charts outline the discrepancies and succeeding paragraphs address the
 

reasons for the misstatements.
 

2006Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

at February 2, 2006 

$0 $0 $0 

Receipts $216,820 $206,658 $10,162 

Overstated 

Disbursements $225,844 $206,280 $19,564 

Overstated 

Ending Cash Balance 

at December 31, 2006 

$(17,204)~ $378 $17,5824 

Understated 

The net overstatement of receipts in 2006 was the result of the following: 

•	 In-kind contributions not reported + $ 5,200 

•	 Reported receipts not supported by a deposit or credit 23,154 

These figures do not foot mainly as the result of errors arising from the ending cash balance of one 

report differing from the beginning cash on hand balance of the subsequent report. 

4 Ibid. 
6 

745 

270 

• Receipts not reported 

• Unexplained understatement +

+ 7,047
 

• Net Overstatement of Receipts $10,162 

The net overstatement of disbursements in 2006 was the result ofthe following: 

• In-kind contributions not reported 

• Operating expenditures not reported 

• Disbursement amount reported incorrectly 

+

+

+ 

+
 

$ 5,200
 

18,612
 

• Disbursement reported not supported by a check or debit. 44,024 

The majority appear to be duplicate entries. 

• Unexplained Understatement 378
 

•	 Net Overstatement of Disbursements $ 19,564 

As a result of the misstatements detailed above and errors arising from the ending cash 

balance of one report differing from the beginning cash on hand balance ofthe 

subsequent report, ending cash on hand for 2006 was understated by $17,582. 

The Audit staff presented this matter to JSCC representatives during the exit conference 

along with schedules detailing the discrepancies. JSCC representatives indicated 

amendments would be filed. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that JSCC: 

•	 File amended reports to correct the misstatements; and, 

•	 Amend the cash balance of its most recent report with an explanation that it resulted 

from audit adjustments from a prior period. 

In response to the interim audit report, JFCC indicated that one amended report had been 

transmitted and that it had difficulty submitting additional amended reports. JSCC's 

response notes its commitment to correcting all reports. 

The Audit staff determined that the report JSCC indicated had been transmitted had not 

been filed. In addition, JSCC was advised that the amended reports had to be filed for it 

to be considered in compliance with the Audit staffs recommendation. JSCC was also 

provided information on Commission staff that could assist in the filing of amended 

reports. 

JSCC filed amended reports approximately four months after the final audit report was 

submitted to the Commission for approval which materially corrected the misstatements 

noted above. 
7 

I Finding 3. Disclosure of Disbursements 

Summary 

The Audit staff noted 56 disbursements totaling $160,391 for which disclosure of the 

purpose and/or address was either absent or inaccurate. Inadequate recordkeeping of 

purposes contributed significantly to this problem. In response to the interim audit 

report, JSCC noted it is committed to amending its reports and detailed its unsuccessful 

attempt to amend its reports to correct the disclosure of these disbursements. JSCC filed 

amended reports approximately four months after the final audit report was submitted to 

the Commission for approval which materially corrected the disclosure errors noted 

above. 

Legal Standard 

A. Reporting Operating Expenditures: When operating expenditures to the same 

person exceed $200 in an election cycle, the committee must report the: 

•	 Amount; 

•	 Date when the expenditures were made; 

•	 Name and address ofthe payee; and 

•	 Purpose (a brief description of why the disbursement was made-see below). 2 

U.S.C. §434(b)(5)(A) and 11 CFR §104.3(b)(4)(i). 

B.	 Examples of Purpose. 

•	 Adequate Descriptions. Examples of adequate descriptions of "purpose" include 

the following: dinner expenses, media, salary, polling, travel, party fees, phone 

banks, travel expenses, travel expense reimbursement, catering costs, loan 

repayment, or contribution refund. 11 CFR §104.3 (b)(4)(i)(A). 

•	 Inadequate Descriptions. The following descriptions do not meet the requirement 

for reporting "purpose": advance, election day expenses, other expenses, expense 

reimbursement, miscellaneous, outside services, get-out-the-vote, and voter 

registration. 11 CFR §104.3 (b)(4)(i)(A). 

Facts and Analysis 

The Audit staff reviewed 79 disbursements, totaling $180,307 for adequacy of disclosure. 

Of these, 56 disbursements, totaling $160,391, or about 90% of the dollars reviewed, 

were not adequately disclosed. For most ofthese disbursements, the purpose was not 

disclosed. Additionally, for some disbursements the address was incorrectly disclosed. 

Some of the inadequate disclosure appears to have resulted from the information not 

being maintained in JSCC records (See Scope Limitation, page 1). 

The Audit staff presented this matter to JSCC representatives during the exit conference 

along with schedules detailing the discrepancies. JSCC representatives indicated 

amendments would be filed. 
8 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that JSCC amend its reports to adequately disclose these 

disbursements. In response to the interim audit report, JFCC indicated that one amended 

report had been transmitted and that it had difficulty submitting additional amended 

reports. JSCC's response notes its commitment to correcting all reports. 

The Audit staff determined that the report JSCC indicated had been transmitted had not 

been filed. In addition, JSCC was advised that the amended reports had to be filed for it 

to be considered in compliance with the Audit staff's recommendation. JSCC was also 

provided information on Commission staff that could assist in the filing of amended 

reports. 

JSCC filed amended reports approximately four months after the final audit report was
 

submitted to the Commission for approval which materially corrected the disclosure
 

errors noted above.
 

IFinding 4. Receipts Documentation 

Summary 

JSCC failed to maintain copies of contributor checks, as required, for 35 contributions, 

totaling $30,775. In response to the interim audit report, JSCC stated that an oversight 

resulted in the copies of contributor checks either not being made or the copies 

misplaced. Although having limited success, JSCC will continue to attempt to obtain the 

missing check copies. 

Legal Standard 

A. Recordkeeping Requirements for Receipts. Political committees must keep 

records of: 

•	 All contributions received by or on behalf ofthe committee; 

•	 The name and address of any person who makes a contribution in excess of$50, 

together with the date and amount ofthe contribution; and 

•	 The occupation and name of employer of any individual whose contributions 

aggregate more than $200 during a calendar year, together with the date and 

amount of any such contributions. 2 U.S.c. §432(c). 

B. Retention of Check Copies. For contributions in excess of $50, committees must 

maintain a photocopy or digital image ofthe check or written instrument. 11 CFR 

§102.9(a)(4). 

C. Preserving Documents. Committees must preserve these records for 3 years after a 

report is filed. 2 U.S.C. §432(d). 

Facts and Analysis 

As part of its review of all receipts, the Audit staff noted that JSCC failed to maintain 

copies of contributor checks, as required, for 35 contributions, totaling $30,775. Most of 
9 

the missing check copies involved contributions received during February and March 

2006, shortly after JSCC's inception. 

The Audit staff presented this matter to the JSCC representative during the exit 

conference. The representative indicated efforts would be made to obtain the missing 

check copies. Some additional records have been provided and the representative 

indicated his efforts to locate additional check copies continue. 

Interim Audit Report Recommendation and Committee Response 

The Audit staff recommended that JSCC further attempt to obtain the missing 

contribution records by contacting its bank and having any additional records located sent 

directly to the Audit staff; and provide any comments it may yet have relative to this 

matter. 

In its response to the interim audit report, JSCC stated that due to an oversight at the 

initial fundraiser, copies of contributor's checks were either not made or misplaced. 

Since being notified of this issue during the audit, JSCC has diligently attempted to 

obtain copies of the missing checks from contributors. All copies obtained have been 

forwarded. Due to the length of time since the campaign, and limited committee 

resources, JSCC has had limited success in this regard. The response advises that JSCC 

will continue to attempt to obtain those copies not yet supplied, has fully cooperated with 

all requests from the Commission and has used its best efforts to correct the findings 

documented by the audit. 

JSCC's response did not contain any copies of contributor checks; as such, $30,775 in 

contributions from individuals remains undocumented.