FEDERAL ELECTION COMMISSION 

Y\ASHIN<iTON, l).C. 204bJ 

MEMORANDL'M 

TO: Patricia C. Orrock 

FROM: 

Chief Compliance Officer 

Thomas E. Hintcnnister 

Assistant Staff Director 

Audit Division 

Lisa J. Stevenson "Jl.) fr i....:JS 

Deputy General Counsel - Law 

Lorenzo Holloway :::ra f.,r LH 

Assistant General Counsel 

Compliance Advice 

Danita C. Alberico J6 f....- De.A--

Attorney 

11W 25 20fi 

SUBJECT: Interim Audit Report on the Conservative Campaign Committee (LRA 996) 

I. INTRODUCTION 

The Office of the General Counsel has reviewed the Interim Audit Report ("!AR") on the 

Conservative Campaign Committee ("Committee"). The !AR contains one finding: Failure to 

File Notices and Properly Disclose Independent Expenditures. Our comments address this 

finding. If you have any questions, please contact Danita C. Alberico, the attorney assigned to 

this audit. 
Comments on the Interim Audit Report 

Conservative Campaign Committee (LRA 996) 

Page 2 

II. FAILURE TO FILE NOTICES AND PROPERLY DISCLOSE INDEPENDENT 

EXPENDITURES' 

A. Reporting of Independent Expenditures Section 

The Audit staff identified 173 media-related disbursements, totaling $652,034, which 

Audit determined should have been reported as independent expenditures. The Committee 

disclosed these expenditures as operating expenditures. The audit report places these 

expenditures into two main categories of independent expenditures: I) independent expenditures 

supported by the underlying communications and 2) independent expenditures for which no 

underlying communications were provided by the Committee. 

For the independent expenditures supported by the underlying communications, the 

auditors identified 39 disbursements totaling $294,036, for which the Committee provided a 

copy of the communication, invoices, television and radio advertisements, blast emails, and 

additional supporting documentation. The Audit staff concludes that the communications 

contained language expressly advocating the election or defeat of a clearly identified candidate 

under 11 C.F.R. § l 00.22(a) because the communications included statements such as "Defeat 

Obama Tele-thon" and "We're going to stop Barack Obama from getting Wisconsin's 10 

Electoral Votes." The !AR, therefore, concludes that these disbursements should have been 

disclosed as independent expenditures rather than operating expenditures. We reviewed the 

communications and concur with Audit staff that the disbursements should have been reported as 

independent expenditures because they contained express advocacy. 

For the independent expenditures for which no underlying communications were 

provided, the auditors identified 134 media-related disbursements totaling $357,998. Since the 

communications were not available for the auditors to review, the Audit staff reviewed other 

available documentation such as the Committee's reconciled disbursements database, invoices 

and bank statements. The auditors conclude that, in the absence of documentation demonstrating 

that the disbursements did not require reporting as independent expenditures, the Committee 

should amend its reports to disclose the disbursements as independent expenditures on Schedule 

E and submit revised procedures for reporting independent expenditures. 

The auditors believe that the disbursements may be independent expenditures based on 

information they reviewed from the Committee's disbursement database, invoices, and bank 

statements. The auditors grouped the finding for the 134 media-related disbursements into three 

categories. In the first category, "Details on Invoice," the auditors inferred that 29 disbursements 

totaling $166,825 were for communications containing express advocacy based on details listed 

on invoices provided by the Committee. For example, one invoice shows that the vendor 

calculated its charges for services based on the amount of funds raised by the Committee from a 

Before proceeding wilh our principal comments, we have a brief, ancillary comment relating to the 

presentation of this finding to the Committee. We recommend that the Audit Division furnish to the Committee, 

along with the IAR. lists or charts specifically identifying the advertisements the auditors believe may be 

independent expenditures so that the Committee may provide a fully infonmcd response. 
Comments on the Interim Audit Report 

Conservative Campaign Committee (LRA 996) 

Page 3 

communication listing the name of a candidate. The auditors believe that the communication 

contained express advocacy because the invoice included the name of a Federal candidate. In the 

second category, "Use of Common Independent Expenditure Vendor (with invoice)," the 

auditors addressed I 04 disbursements totaling $186,498. In this category, the auditors surmised 

that disbursements were for independent expenditures because the Committee previously made 

payments to the same vendors for other communications containing express advocacy as verified 

by copies of the related communications. In the third category, "Use of Common Independent 

Expenditure Vendor (without invoice)," the auditors addressed one disbursement totaling 

$4,675. In this category, the auditors considered the disbursement to be an independent 

expenditure because the vendor also provided other communications that the Committee reported 

as independent expenditures. 

We believe, however, that more information is needed to support a finding that the 

disbursements meet the requirements to be considered independent expenditures. 

To be an independent expenditure, the communication must expressly advocate the 

election or defeat of a clearly identified candidate and must not be made in concert or 

cooperation with or at the request or suggestion of that candidate, the candidate's authorized 

political committee, their agents, or a political party commitlee or its agents. 52 U .S.C. 

§ 30101 ( I 7); 11 C.F.R. § JOO. J 6(a). A candidate is clearly identified in a communication when 

the name of the candidate involved appears; a photograph or drawing of the candidate appears; 

or the identity of the candidate is apparent by unambiguous reference. 52 U.S.C. § 30101(18); 

11 C.F.R. § 100. 17. 

A communication can expressly advocate the election or defeat of a candidate in two 

ways. First, a communication expressly advocates the election or defeat of a clearly identified 

candidate when it uses phrases such as "vote for the President," ··re-elect your Congressman," 

"support the Democratic nominee," "cast your ballot for the Republican challenger for U.S. 

Senate in Georgia," "Smith for Congress," "Bill McKay in '94," "vote Pro-Life" or "vote ProChoice" accompanied by a listing of clearly identified candidates described as Pro-Life or ProChoice, "vote against Old Hickory," "defeat" accompanied by a picture of one or more 

candidatc(s), "reject the incumbent" or communications of campaign slogan(s) or individual 

word(s), which in context can have no other reasonable meaning than to urge the election or 

defeat of one or more clearly identified candidate(s), such as posters, bumper stickers, 

advertisements, etc. which say "Nixon's the One", "Carter '76", ''Reagan/Bush" or "Mondale!" 

11 C.F.R. § I 00.22(a). 

Second, a communication may contain express advocacy if, when taken as a whole and 

with limited reference to external events, such as the proximity to the election, it could only be 

interpreted by a reasonable person as containing advocacy for the election or defeat of one or 

more clearly identified candidate(s), because: (I) the electoral portion of the communication is 

unmistakable, unambiguous, and suggestive of only one meaning; and (2) reasonable minds 

could not differ as to whether it encourages actions to elect or defeat one or more clearly 

identified candidate(s) or encourages some other kind of action. 11 C.F.R. § I 00.22(b). 
Comments on the Interim Audit Report 

Conservative Campaign Comminee (LRA 996) 

?age 4 

With these standards in mind, we do not believe that Audit staff may infer that 

disbursements were for inderendent expenditures solely on the basis of invoice descriptions or 

the use of common vendors. Since the communications are not available, it is difficult to 

determine whether they contain express advocacy. The information contained in invoices, 

generally, may not be adequate because invoices are not typically created for purposes of 

conveying the content of communications. Rather, invoices usually contain brief descriptors that 

are sufficient for both a vendor to identify the service provided and a committee to confirm that 

it is receiving the service for which it contracted prior to making payment. Similarly, although 

the auditors found that disbursements were made to some of the same vendors who had 

previously been paid by the Committee for prior communications containing express advocacy, 

its conclusion that these additional communications from the same vendors therefore contain 

express advocacy cannot be supported since it is possible that the same vendor provided services 

for communications that did not, in fact, contain express advocacy and thus were not 

independent expenditures. Given the difficulty of analyzing whether a communication contains 

express advocacy when the communication is available, we conclude descriptive information 

contained in an invoice, database, or bank statement or the use of a common vendor is too 

tangential to support a finding that express advocacy exists absent a copy of the underlying 

communication or other more descriptive documentation than that relied upon by Audit staff 

here. 

We acknowledge, however, that there are instances where drawing inferences is 

appropriate. For example, in the allocation context, we believe that Audit staff may infer that 

certain types of ordinary overhead expenses such as postage, consuhing, travel reimbursements, 

printing, and accounting fees are allocable absent information demonstrating that the expenses 

are solely non-federal. See Legal Analysis Memorandum to the Audit Division, ''Interim Audit 

Report on the Maine Republican Party" (LRA 817) (Dec. 17, 2010). This type of adverse 

interence can be supported because the Commission, through the regulatory process, has already 

determined that administrative expenses of this type are, in fact, allocable absent a demonstration 

otherwise. There has been no such regulatory guidance by the Commission here. Audit staff 

also may use adverse inferences where a committee's internal records specifically identify the 

type of expenditure though its reports disclose the expenditure differently. See id. (Audit staff 

may conclude that printed material costs that the committee coded in its internal records as 

Federal election activity ["FEA''] but reported as operating expenses represents potential FEA 

while giving the committee an opportunity to clarify the discrepancy). Such discrepancies, 

however, do not exist here. 

We understand that Audit staff is relying on infonnal guidance that we provided in the audit of the 

, as the basis for its undocumented expenditure analysis in the 

current IAR and its conclusion that these disbursements may be independent expenditures. In the~ matler, we 

recommended that the Audit Division treat certain disbursements as independent expenditures in the interim audit 

report and invite the - to respond to the report. See..------------------.,-- . However, we made this recommendation with respect to actual communications that appeared to contain 

express advocacy, but about which we were hesitant to reach a definitive conclusion because the- had not yet 

explained its legal and factual bases for dividing its communications into independent and operating expenditures in 

the manner that it did. Id. Thus, this guidance would not apply to disbursements where no communications are 

available to assess. 
Comments on the lnterim Audit Report 

Conservative Campaign Committee (LRA 996) 

Page 5 

To address the lack of information at this stage of the audit, we recommend that the 134 

media-related disbursements totaling $357,998 for which no underlying communication was 

provided should not be categorized as independent expenditures. Instead, the disbursements 

should be treated as a separate category of expenditures for which the Committee has not 

provided sufficient documentation to verify its disclosure reports. When a committee reports 

financial activity, the Commission requires the committee to maintain records with respect to 

that activity. 11 C.F.R. § 104.14(b)(l). These records must provide, in sufficient detail, the 

necessary information and data from which the filed reports may be verified, explained, clarified, 

and checked for accuracy and completeness. Id. In the absence of this information, the auditors 

are unable to verify whether the Committee correctly reported its disbursements as operating 

expenditures or whether they should have been disclosed as independent expenditures. Thus, the 

Committee should be given the opportunity to provide copies of the communications, additional 

documentation, or other information and/or to explain any discrepancies in its reporting. In the 

alternative, the Audit staff may request the Commission to issue a subpoena for copies of the 

communications at issue or other documents the auditors believe may enable it to verify the 

Committee's reporting of these disbursements as operating expenditures. 

B. Failure to File 24/48 Hour Reports for Independent Expenditures Section -

Absence of Dissemination Date Information 

Finally, we comment briefly on the portion of the finding that discusses the Committee's 

apparent failure to file certain 24-hour and 48-hour reports of independent expenditures in a 

timely fashion. The JAR notes that for certain communications the actual dates of dissemination 

were not known and that in such cases, the Audit staff used either the date of the invoice or the 

date of the incurrence of the expense for the independent expenditure as the date of public 

dissemination for the purpose of conducting its analysis. !AR, at 8, n.6. In subsequent 

discussion with the Audit staff, the auditors indicated that they selected alternate dates -

:. In the absence of the dissemination date, 

we ------------------believe that the auditors may permissibly use an alternate date, -

-· Use ofan alternate date enables Audit staff to complete the audit based on the 

available information. We recommend, however, that the Audit Division revise this aspect of the 

finding and specify the instances where an alternate date is used and give the Committee the 

opportunity to provide information on the actual dissemination date.