Part I
Background

Authority for Audit

This report is based on an audit of Fortufio 2004, Inc., 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 internal 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

This audit examined:

The receipt of excessive contributions and loans.

The receipt of contributions from prohibited sources.

The disclosure of contributions received.

The disclosure of disbursements, debts and obligations.

The consistency between reported figures and bank records. _
The completeness of records.

Other committee operations necessary to the review.

NAVAS

Limitations

The Audit staff identified reimbursements to individuals for campaign related expenses
that required itemization totaling $121,473. Although the Committee complied with the
record keeping requirements of the Act by providing a cancelled check”, 26% of these
reimbursements did not have receipts from the original vendors to support the
individual’s reimbursement. As a result, the scope of the review for reimbursements to
individuals, with respect to disclosure of the required memo entries, was limited to those
disbursement records containing a receipt or invoice from the original vendors.

2 If the disbursement was in excess of $200, the records must include a receipt or invoice from the payee,
or a cancelled check or share draft to the payee. 11 CFR §102.9(b)(2)



¢ The election cycle-to-date total of all contributions from the same contributor. 11
CFR §§100.12 and 104.3(a)(4) and 2 U.S.C. §434(b)(3)(A) and (B).

Facts and Analysis

The Audit staff identified contributions from the Republican National Committee totaling
$10,000 that were not itemized on Schedule A (Itemized Receipts), Line 11b of reports
filed prior to being notified of the Commission’s audit. Subsequent to being notified of
the audit, the Committee filed amended reports disclosing these contributions.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended the Committee provide any comments it had regarding the
itemization of these receipts. In response, the Committee reiterated that these receipts
had been included on amended reports filed prior to the FEC audit, but did not explain
why they had been omitted from the original reports.

| Finding 3. Disclosure of Disbursements

Summary
The Audit staff identified disbursements totaling $311,775 that lacked or inadequately

disclosed the required information. The Audit staff recommended the Committee file
amended reports for 2003 and 2004 to correct the disclosure of its disbursements. In
response, the Committee filed amended reports correctly disclosing the required
information.

Legal Standard
A. Reporting Operating Expenditures. When operating expenditures to the same
person exceed $200 in an election cycle, the committee must report the:

e Amount;

e Date when the expenditures were made;

e Name and address of the payee*; and

© Purpose (a brief description of why the disbursement was made—see below). 11

CFR §104.3(b)(4)(i).

B. Examples of Purpose.

e 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).

e 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).

5 Payee means the person who provides the goods or services to the committee. 11 CFR
§102.9(b)(2)(i)(A)



Part III
Summaries

Findings and Recommendations

Finding 1. Disclosure of Form 3Z-1

The Committee filed Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized
Committees) with its 2003 Year-End report but did not disclose the required financial
information. The Audit staff recommended the Committee demonstrate that the required
form was filed correctly or provide any comments it may have relative to this filing. In
response, the Committee contended that the form was filed, but filed amended reports
that included a completed Form 3Z-1. ,
(For more detail, see p. 4)

Finding 2. Itemization of Receipts

The Audit staff identified contributions from the Republican National Committee totaling
$10,000 that were not itemized on Schedule A (Itemized Receipts) of reports filed before
the Committee was notified of the audit. After receiving notice of the audit, the
Committee filed amended reports disclosing these contributions. The Audit staff
recommended the Committee provide any comments it had regarding the itemization of
these receipts. In response, the Committee reiterated that these receipts had been
included on amended reports filed prior to the FEC audit, but did not explain why they
had been omitted from the original reports.

(For more detail, see p. 5)

Finding 3. Disclosure of Disbursements

The Audit staff identified disbursements totaling $311,775 that.lacked or inadequately
disclosed the required information. The Audit staff recommended the Committee file
amended reports for 2003 and 2004 to correct the disclosure of its disbursements. In
response, the Committee filed amended reports correctly disclosing the required
information.

(For more detail, see p. 6)

Finding 4. Itemization of Debts and Obligations

The Audit staff identified debts and obligations totaling $191,420 that were not itemized
on Schedules D (Debts and Obligations). The Audit staff recommended the Committee
file amended reports for 2003 and 2004 to correct its disclosure of debts and obligations.
In response, the Committee stated.that amended reports did not need modification due to
the nature of the transactions. Nonetheless, the Committee filed amended reports
disclosing the requested debt and obligation information.

(For more detail, see p. 7)



Part II
Overview of Campaign

Campaign Organization

Important Dates . Fortuiio 2004, Inc.

e Date of Registration August 5, 2003

e Audit Coverage . July 31, 2003 — December 31, 2004
Headquarters San Juan, Puerto Rico

Bank Information

e Bank Depositories 1

e Bank Accounts 1 Checking Account

Treasurer

e Treasurer When Audit Was Conducted Maria Sanchez Bras

e . Treasurer During Period Covered by Audit _| Maria Sanchez Bras

Management Information

e Attended FEC Campaign Finance Seminar __| No

e Used Commonly Available Campaign FecFile
Management Software Package

e Who Handled Accounting and Volunteers
Recordkeeping Tasks

Overview of Financial Activity
(Audited Amounts)

Cash on hand @ July 30, 2003 $ 0
Receipts

© Contributions from Individuals 1,551,919
© Contributions from Political Party Committees 14,500
© Contributions from Other Political Committees 142,367
Total Receipts $ 1,708,786
Disbursements

o Operating Expenditures 1,660,776
o Contributions Refunds 18,550
Total Disbursements : $ 1,679,326
Cash on hand @ December 31, 2004 $ 29,460



Interim Audit Report Recommendation and Committee Response
The Audit staff recommended the Committee demonstrate that Form 3Z-1 was filed
correctly or provide any comments it may have relative to this filing. In response, the
Committee filed amended reports that included a completed Form 3Z-1.*

Additionally, the Committee reiterated that Form 3Z-1 had been requested by the
assigned analyst in the Commission’s Reports Analysis Division. The Committee stated
that when this request was received, the Treasurer proceeded to make the necessary
amendment to the FEC electronic file with the help of the FEC analyst. The Committee
further stated that it did not receive any other letters from the analyst due to.the fact that
the information had been provided. However, a completed Form 3Z-1 was not included
with the Committee’s electronic filings.

| Finding 2. Itemization of Receipts

Summary
The Audit staff identified contributions from the Republican National Committee totaling

$10,000 that were not itemized on Schedule A (Itemized Receipts) of reports filed before
the Committee was notified of the audit. After receiving notice of the audit, the
Committee filed amended reports disclosing these contributions. The Audit staff
recommended the Committee provide any comments it had regarding the itemization of
these receipts. In response, the Committee reiterated that these receipts had been
included on amended reports filed prior to the FEC audit, but did not explain why they

had been omitted from the original reports.

Legal Standard
A. When to Itemize. Authorized candidate committees must itemize:

e Any contribution from an individual if it exceeds $200 per election cycle, either
by itself or when aggregated with other contributioris from the same contributor;
and

e Every contribution from any political committee, regardless of the amount.

« Every transfer from another political party committee, regardless of whether the
committees are affiliated. 2 U.S.C. §434(b)(3)(A), (B) and (D). :

B. Definition of Itemization. Jtemization of contributions received means that the
recipient committee discloses, on a separate schedule, the following information:
e The amount of the contribution;
© The date of receipt (the date the committee received the contribution);
e The full name and address of the contributor;
e Inthe case of contributions from individual contributors, the contributor’s
occupation and the name of his or her employer; and

4 Because the information on Form 3Z-1.is useful only before the election, no amended reports were
requested.



FEDERAL ELECTION COMMISSION
WASHINGTON, D.C. 20463.

January 20, 2006

MEMORANDUM

TO: ROBERT W. BIERSACK
PRESS OFFICER
PRESS OFFICE

FROM: JOSEPH F. STOLTZ ,
ASSISTANT STAFF, CTOR
AUDIT DIVISION

SUBJECT: . PUBLIC ISSUANCE OF THE AUDIT. REPORT ON"
FORTUNO 2004, INC.

: Attached please find a copy of the audit report on Fortufio 2004, Inc. which was
approved by the Commission on January 12, 2006.

All parties involved have received informational copies of the report and the report
may be released to the public.

Attachment as stated

ce: Office of General Counsel
Office of Public Disclosure
Reports Analysis Division
FEC Library

‘Web Manager



C. Itemizing Debts and Obligations.

e A debt of $500 or less must be reported once it has been outstanding 60 days from
the date incurred (the date of the transaction); the committee reports it on the next
regularly scheduled report.

e A debt exceeding $500 must be disclosed in the report that covers the date on
which the debt was incurred. 11 CFR §104.11(b).

Facts and Analysis

During a 100% review of disbursements, the Audit staff identified debts and obligations
totaling $191,420 that were not itemized on Schedules D. In order to determine total
debts not reported, each outstanding debt was counted only once, even if it was
outstanding for several reporting periods.

Interim Audit Report Recommendation and Committee Response
The Audit staff recommended the Committee file amended reports for 2003 and 2004 to
correct its itemization of debts and obligations. In response, the committee believed that
the reports did not need modification. The Committee stated that the majority of the
invoices were for media and advertising which were paid half in advance, and the other .
half after receiving proof that the service had been provided. The Committee further
explained that the invoices at issue carried the date of the original service request. As
such, the total cost of the service to be provided may have appeared as debt. The
Committee contended that the cost of such services should not be considered a debt until
the Committee and its Treasurer received and reviewed the proof that the service had
been provided. According to the Committee, that verification could take as long as 30°
days from the date of the invoice. Nonetheless, the Committee filed the requested

amended reports.

The Committee’s explanation about the media and advertising expenditures supports the
Audit staff’s position that the disbursements were reportable as debts. The Commission’s
regulation at 11 CFR §104.11 states in part that a debt or obligation, including a written
contract, written promise or written agreement to make an expenditure, must be reported
as of the date incurred. These media and advertising invoices were written agreements
for the vendors to provide a service for which the total cost exceeded $500.



Facts and Analysis

During a 100% review of disbursements, the Audit staff identified expenditures totaling
$311,775 that lacked or inadequately disclosed the required information: Disbursements
totaling $274,453 inadequately disclosed the name, address, or purpose. The remaining
$37,322 were reimbursements to individuals for campaign related expenses that were not
also disclosed as memo entries to the original vendors.

As stated earlier, the scope of the review for reimbursements to individuals, with respect
to disclosure of the required memo entries, was limited to those disbursement records
containing a receipt or invoice from the original vendors.

Interim Audit Report Recommendation and Committee Response

The Audit staff recommended that the Committee:

e Disclose on Schedules B (Itemized Disbursements) the correct name, address, or
purpose of expenditures; and,

e Disclose on Schedules B, for reimbursements to individuals (excluding personal
travel and subsistence), a memo entry, if required, including the name and address of
the original vendor, as well as the date, amount, and purpose of the original purchase.

In response, the Committee filed amended reports disclosing the correct name, address,
or purpose of expenditures. In addition, for reimbursements to individuals, the
Committee disclosed the required memo entries of the original vendor for those
transactions supported by a receipt or invoice.

| Finding 4. Itemization of Debts and Obligations

Summary
The Audit staff identified debts and obligations totaling $191,420 that were not itemized

on Schedules D (Debts and Obligations). The Audit staff recommended the Committee
file amended reports for 2003 and 2004 to correct its disclosure of debts and obligations.
In response, the Committee stated that amended reports did not need modification due to
the nature of the transactions. Nonetheless, the Committee filed amended reports
disclosing the requested debt and obligation information.

Legal Standard

A. Continuous Reporting Required. A political committee must disclose the amount.
and nature of outstanding debts and obligations until those debts are extinguished. 2
U.S.C §434(b)(8) and'11 CFR §§104.3(d) and 104.11(a).

B. Separate Schedules. A political committee must file separate schedules for debts
owed by the committee and debts owed to the committee, together with a statement
explaining the circumstances and conditions under which each debt and obligation was
incurred or extinguished. 11 CFR §104.11(a).



Part IV
Findings and Recommendations

| Finding 1. Disclosure of Form 32-1

Summary
The Committee filed Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized

Committees) with its 2003 Year-End report but did not disclose the required financial
information. The Audit staff recommended the Committee demonstrate that the required
form was filed correctly or provide any comments it may have relative to this filing. In
response, the Committee contended that the form was filed, but filed amended reports
that included a completed Form 3Z-1. , ,

Legal Standard

Special Reporting Requirements. Principal campaign committees of candidates for the
U.S. House and the U.S. Senate must file FEC Form 3Z-1 as part of their July Quarterly
and Year-End Reports in the year preceding the year in which the general election for the
office sought is held. The information in this form allows opposing candidates to
compute their “gross receipts advantage” used to determining whether a candidate is ”
entitled to an increased contribution limit. The following information must be disclosed:

1. Gross'receipts to date for the primary and general elections,

2. Aggregate amount of contributions from personal funds of the candidate for the
primary and general elections, and,

3. A calculation of gross receipts less the candidate’s personal contributions for each
election. 11 CFR §104.19.

Facts and Analysis
The Committee filed Form 3Z-1 (Consolidated Report of Gross Receipts for Authorized

Committees) with its 2003 Year-End Report but did not disclose the required financial
information.

Using the electronic data provided by the Committee, the Audit staff determined gross
receipts for the primary of $496,635, and for the general of $64,425, should have been
disclosed on Form 3Z-1 of its 2003 Year-End Report. There were no personal
contributions by the Candidate.

The Audit staff discussed this matter with the Committee representative at the exit
conference. The representative stated she strongly remembered filing Form 3Z-1 because
she had to count all of the receipts. She also stated she talked with the Committee’s FEC

Campaign Finance Analyst about this filing.

3 This regulation became effective January 27, 2003; as such, this audit period is the first that required
filing of this form.



Table of Contents

Part I. Background
Authority for Audit
Scope of Audit
Limitations

Part II. Overview of Campaign
Campaign Organization
Overview of Financial Activity

Part III. Summaries
Findings and Recommendations

Part IV. Findings and Recommendations
Finding 1. Disclosure of Form 3Z-1
Finding 2. Itemization of Receipts
Finding 3. Disclosure of Disbursements
Finding 4. -Itemization of Debts and Obligations

Page

YAW



Report of the
Audit Division on
Fortuno 2004, Inc.

July 31, 2003 - December 31, 2004



Report of the
Audit Division on

Fortufio 2004, Inc.
July 31, 2003 - December 31, 2004

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.' 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 of the
matters discussed in this

report.

' 2 U.S.C. §438(b).

About the Campaign (p. 2)

Fortufio 2004, Inc. (the Committee) is the principal campaign
committee for Luis Fortufio, Republican candidate for the U.S.
House of Representatives from the territory of Puerto Rico. The
Committee is headquartered in San Juan, Puerto Rico. For more
information, see the chart on Campaign Organization, p. 2.

Financial Activity (p. 2)
e Receipts

© Contributions from Individuals $ 1,551,919
© Contributions from Political

Party Committees 14,500 -
o Contributions from Other

Political Committees 142,367
o - Total Receipts $ 1,708,786

¢ Disbursements :
o Operating Expenditures
o Contribution Refunds
© Total Disbursements

$ 1,660,776
18,550
$ 1,679,326

Findings and Recommendations (p. 3)
Disclosure of Form 3Z-1 (Finding 1)

Itemization of Receipts (Finding 2)

Disclosure of Disbursements (Finding 3)
Itemization of Debts and Obligations (Finding 4)