nOERAL ELECTKmOMllMDN iwewcnoKocaewi ** 

sEPiim MEMORANDUM 

TO: Patricia C. OnDck 

Chief Compliance Officer 

OKHiua E. Hintenniiter 

Aaristant Staff Director 

Audit Diviaicn 

FROM: AdavNoti'l^ 

Associale Geoenl Counsel 

Policy Division 

Lorenzo Holloway 

Auiatant Geneial Counsel 

fiff Compliance Advice 

Joriuia Blume"^^ 

Adomey 

SUBJECT: Interim Audit Rqx)rt on die ConservalivtMqority Find (LRA 986) 

I. INTRODUCTION 

Oie Office of the General Counsel has reviewed the Interim Audit Report ClAR") on the 

Conservative Majority Fund Committee")-' OielAR contains five fiiuhngs: Misstatement 

of Financial Activity (Finding 1); Disclosure of Occupation and Name of Employer (Finding 2); 

Fhilure to File Reports and Properly Disclose independent Expdiditulea (Finding 3); Reporting of 

Debts and OUigptiona (Finding 4); and Recordkeeping fbr Commumcations (Finding 5). Our 

comments address Fintfings 3 and 5. We have no comments regsrding the ote findings. Ifyou 

have any questionsi please contact Joshua Blume, the attorney assigned to this audit 

' WcwbiiikiBdcoffliiieiiiiOBapRviMBvcnlonoflhiiIARonMiy2,20I6. The Audk DIVUM 

lubnqismly withdrew thit wnhm of the lAR from drculrton te ifae CommiMion. Thcee commentt Hyeiiedc CHT 

ewliercommenii. 
CofimeiilB on the Interim Audit Ropoit 

CoMervttiw M^jorhjr Fhnd (LRA 916) 

Peg|B2 

IL FAILURE TO FILE REPORTS AND PROPERLY DISCLOSE INDEPENDENT 

EXPENDITURES (Ffaidl^K 3) 

Baaed upon its review of invoices documenting the Cominittee'a media-related 

disbucaemenia, the Audit staff concludes that the Comnuttee failed to report $469,136 in 

disbuiaements as independent expenditures, llie Audit staffairived at diis conclusion by totaling 

costs reflected in invoices attributable, in the Audit staff's judgment, to communications 

constituting express advocacy (Sl,816,390)'and then deducting fiom this amount the amount of 

independent expenditures thtf the Commitlee reported during the same time period (S1,347,233). 

In arriving at its express advocacy conclusions, the Audit staff examined the texts of 

communications diat the Commitlee created. Tliese consist oftwotdephone scripts wHh two 

accompanying folkwiHip letters and three television advertisements.^ The Audit staff evaluated 

the content ofthese communications, partly with assistance fiom this office. SeeAmBiQuay: 

Commar/wMti^/yAind, LRA9K(Fcb.26,201S). The Audit staff concluded that one 

telephone script and fidlouHg) letter were express advocacy, while the other telephone script and 

fbilow-up letter were not, and that all three television advcrtisemems were express advocacy.^ 

Aceoiding to the Audit smff, the Committee has indicaied that the commumcations currently in the 

Audit staffs possession represent the entire univenc' of communications distributed by the 

Committee during the audit period.* 

While the Audit staff has invoices documenting media-related services on the one band and 

the texts of all the communications the Commitlee distribuled on the other hand, it does not have 

the mibnnation that it would need to associate qteciflc invoices with the qteclfictelqthone scripts 

' TheAiiilitrtririnGliidMnilticricutstionorthetoiilciiiliauribisibleiDbidepeiideiitexpenditiinia¥Bkiy 

of other types ^ coit dewrilMd on die hvotcM, iiieti u, mong odier thinga, iNMUgB "ihlfllbMiit ItttMi**; oorti 

iuofieUiil eriih credit cerd proceHing comiecied with *italll!lnient teuen^ end with "icquiiitinn nd pnceaing"; 

check debMag for "icquieltlon id pioceieing";*feiiislllit^;'*pnwpccrinif*;"loclcboxmvicei,*ind com iMnrirted 

with ciatiegiiidieBdiQg**premhimi"iDChii a flig ends bumper rticker. IheKcorte described on the Invofoee we 

not defined in terms ofhow thpy we retrted 10 the communicttioai, but llw descripdoas might niw quertiom of 

wtiether some ofihem should be consideied costs Ibr the comimaiiemions. SwII C.F.R. f 100.16. 

* Ceitihiin¥oiceseihidetotwooilierpoteniiiltetevbionidvoitisenienis;ttieinvoieetreforlottiemBS 

*'Obamacsic^ind**RepeelObimicwe". The Cummhiee his not swplied texts fbr these cooununicrtlons; 

scGontiiigfy, these costs me Included in Findfog S, Rscoidkeepiiig fbrCOmmuniatfions. 

* We do not oonment upon the Audit stefTs evihwtions of the communicrtfonB hcriuse we agree with them, 

in our esriler comments on a previous vsnionofthfs lAR, wo recommended thsi the corns of certiln communlcstions 

he relocsied ficsn Finding 3 to Finding 5 bcceiise of the univnilsbilily of the ectunl lexli of those communicrtionB. 

The Audit stsfTs revised lAR Indiosei tfart it hre Ibllowed this rscoiumcndrtion. 

* We recommend thrt the Audit smffindiGStt this In thai AR. We noie, however, tfast there sppew to have 

been at kail two other television adveitlsemeiiti. Sss ibooioie3,siprw. 

* UWIAR does not desoribe the commimlcrtions or the ntionaleihm the Audit stoff used to cliSsHytheee 

eemmumendonatoeiiprewedvoetoy. We reewiwieiiddiss the Audit staff provide foe ComHiiUec wtfoaUstorachsn 

of the conrniimicstiflns that coatain express advocacy, nd u explanstion oflhe agMcls of each cunmmnlcatlon that 

qualify it aa express advocacy to assist the Commfttn in R^MXiding to the lAIL 
Commenls on the Interim Audit Report 

Comeradvc Mtyorhy Fund (LRA 916) 

PugeS 

ami fiDllowiq>letlen furnished by the CoDimitlce. Wiifa leqM to the television advertiaonciits, 

some invoioea do indicate the tel^isian advertiaenieiit with vduch they are associated while othen 

do not. 

Based on this state of the evidence, the Audit staff made a methodological assungition. 

With respect to the telqdione scripts and follow-up letten and the television advertisements that 

could not be definitively linked whfa invoices, the Audit staff assumed that the express advocacy 

communications would most likely have been disseminated befbre the date of the general election 

and the communications not containing express advocacy would moat likely have been 

disseminated after the date of the general dectkm. The Audit staffthen assigned the itemized 

services on the invoices to the communications based on the date upon which the vendor 

completed those services.^ Ifthe services were completed befbre general election, then die 

auditors assigned the cost fortfaeae services to indepisndem expenditures. If the services were 

completed after the general election, the auditors assigned the costs fbr these services to operating 

expoidltures. 

niis assumption enabled the Audit staff to gaiening the quantity of costs attiihutahle to 

independent expenditures that were not reported, $469,136, as describ^ above. 

We believe that it is reasonable for the Audh staff to assume that express advocacy would 

more likely foan not have been disseminaled or distributed before the date of foe general electioiL* 

Express advocacy communications are communications that include such words as *Vote fbi^ and 

'Ye-elect" or that otherwise encourage actions to elect or defeat a candidate. 11 CJ.R. § 100.22(a) 

and(b). Itoe would be little reason to run communications advocating the electoral defeat of 

President Obaina after his re-election. Aird regarding conmumications that are not express 

advocacy, the timing would not matter for current purposes: ifthey were distributed before the 

election, they would not be independent expenditures under section 100.22, and ifthey were 

distributed after the 2012 general election dale, then President Obanu was iKrt at that time a 

candidatB for any office. 11 C.F.R. §S 100.3,100.16(a). SeeliBsponMetaAv^Qimyan 

Confenur/ve h^ority FVm/, LRA 986 (Feb. 26,2015), at 6. See also bnformtd Gwdemct to 

* TtwAudlliadruicditNiiiigeofdiiM lined on Mch invoice to cMimne die drte on wliictittitGoaniiaee*! 

vendor uwieitBtod die eervtcei. it traetedtlie leu deyofdie dele mge primed on the mvoteeaidie dele of contoletion. 

The Audit fSdrhei hrfbrmed ui ihm it need thii eppiusrii in ell cMee except in the case of invotces in which the dele 

nBgeoccuned pertly twfore and pmdyefter the gmsl election dme. In this cam, the Audit stoffGhoie to pnHSte the 

coat ortheamvieeaceonling to the pnportionofthedmeniwBOccunlnsbeflbre and aftor the gBueiil election. Since 

the Audit Dtviiton doea not know when the vendor actually ccmpiised the aervicet, we think this appiunuli b 

inswnshlf. hut we itcommand dint the Audit Divbion include a Inief description of dib mediodoloiy in the lAR to 

explain thb mcttwdoiogy to the Commbaion and the Committee. 5ae Comments ofOGC on lAR on 

TeaPtotyExpnBBX)i|gLRA99S,atS,datodDee. I,201S. Wo also leccmnKnd ihm the Audit staffaddinlbnnition 

ahoii the ino-nting of certain invotces as deirribcd above to Ibetnoie 5 of die lAR. 

* We also note that, unlike some lucent audits letmed to mdependentaxpendiiincs^ here the auditois have 

most of the underiybig communicmions. Theiefare,theaudltonaietMkinsanuniptionBonlydboutdieiMhgofdie 

conummicaiions, not ebout their eomunf, which were the Maimpiluni that we Ibund probi—lb in cemfo previous 

cases. SsfCflnmicnliofOaC on lAR on the Coloiado Republican Comnittoe (LRA 961X received IqrAudK 

Divbicncnitoc. 11,2015; Ccnuncnts of OOC on lAR on the Ccnseivmive Cmnpaitoi Committoe (UlA 996X dated 

N0V.2S, 2015;CommentsofCXiConlARonTeBPBiwBxprem.Oig(LRA99SX dated Dee. 1,2013;andCommenbof 

OGC on lAR on the tllinob Republbn Ibrty (LRA I006X dated Dee. 22.2013. 
Cornmeiili on the Interim Audh Report 

Comervitlve Mqoriiy Fund (LRA 916) 

Pi|p4 

Hearts Amdyals Tabte Talk LLC - Expendimre R^^>ortblg^\JBiA\0\'^ 

(Feb. 4,201Q (no nqniieinenttofilequarteily or 48 hour iqxxts of ind^endent expenditures 

relatiiig 10 advediseinents opposing Hilbny Clinton before she became a candidate). 

in. RECORDKEEPING FOR COMMUNICATIONS (Finding 5) 

This finding concenu disbursements to a media vendor tataling $304^99, some of which 

the Committee did not report, and some ofwhidi the Committee likely reported. However, with 

reflect to these latter amounts, die Audit staff cannot associate invoices with reports. The 

available records for these disbursements include neither associated invoices nor communicalioiis. 

In the absence of these records, the Audit Division cannot determine how the disbursemeiils 

should have been rqxnted. The finding recommends that the Committee provide these materials 

so that the Audit Division may ascertain the nature and the proper reporting of the disbunemenls. 

We concur with this finding. The basis for the finding is 11 C.F.R. § 104.14(bXl)- This 

regulatory provision requires reporting committees to''[mjaintain records, including barik records, 

with leqM to the matters required to be reported, including vouchers, worksheets, receipts, bills 

and accounts, which shall proidde in sufficient detail the necessary infbrmation and data from 

wdiich the filed reports and stafcmenfs may be verified, explained, g|arif^cd, and checked for 

accuracy and completeness." 

Although the plain text of this regulatioa lists only certain types of financial documents, 

and does not apedfically mention conununications scripts, the authority of the regulation is not 

confined to the mentioned documents alone. The regulation does not define the "records" that a 

coaMHttee is required to maintain so narrowly. Rather, the committee is required to maintain 

records, "including^ bank records, which, in turn, "includ[er the kmds of financial documents 

listed in the text 11 C.F.R. § 104.14(bXl)- When a statutory or regulatory definition of terms 

"includes" certain hems, the otherwise ap^icable canon of construction, aqpresvio wifiir est 

excfusfo ofttrfui, generally does not qiply. See 2A Norman J. Singer, SatherUmdSud. Co«r., 

§ 47.25 (T*^ ed. 2014) ("The word "included in a statute generally sig^s that entities not 

flpedfiG^y enumerated are not excluded.'^. See also, e,g,. While v, Nadonai Fooibaii League, 

756 F.3d 585,595 (8^ Cir. 2014); .fowj v. American Postal Workers Union, 192 F.3d 417,426 (4* 

Cir. 1999). linn, the mere menticm of certain kinds of documents in section 104.14(bXl) does not 

exclude other idiids of documents fiom its scope. 

The rnrmnission has not intcipieted this provision so nanowly as to exclude other kinds of 

documents. For exanmie, in an adviacay opinion that addressed the extent to which the 

Commission's personal use regulation, 11 C.F.R. g 113.1(gXlXl)(H). would allow salary 

paymeiUa to a member of a candidate's finnily, the Cfonuriissioniridicated that the coriunittee 

would be required to maintain a copy of the connnittee's emplqyinent contract with the fiunily 

member and other documentation relating to the fiunily memo's enqrioyment under the authority 

of section 104.14(b). Advisory C)piiiion 2001-10 (Jackson). In another advisory opinion that 

consiraed the peimal use provisions, here in the context ^ the use of a car for campaigh and for 

personal purposes, the Commission observed that the preservation of a mileage log that would be 

updated widi each use ofthe car would satisfy the recordkeeping requirements of II C.F.R. 
Commemi on thn Inkrln Audit Rnpoit 

CaiiNr¥itl¥a Kmoriiy Fund (LRA 916) 

PIIFS 

§ 104.14(b) if mambdnodu part of the commiltoe'saccoiintuigreoonb. Advisoiy Opiiuon 

2001-03 (Meda). The Commission has also indicated that payroll deduction authorization fimns 

are among the recoids that wmuldsatisiy die lecofdkeepiQgiequiremeiit of section 104.14(bXl). 

See, e.g.. Advisory ()pinion 1999-03 (Microsoft PAC); MUR 49SS (Metropolhan Life Insunnce 

Cotaptny Employees' Political Participation Fund AX Factual and Legal Analysis (Dec. 22, 

1999X* Finally, hi a matter mvolvingenfinceaientofthe requirement to file 24-Hournotices for 

independent expenditures, the Commission admonished the respondent committee for foiling to 

maintain various types of documents memorializing the dissemination dates of the adveitiseinents 

under section 104.14(bXlX MUR S8S0 (Republican National CommhteeX Factual and Legal 

Analysis, at 6 (Dec. 17,2007). 

Ahfaough employment contracts, mileage logs, payroll deduction authorizstion finms, and 

the various documents memorializing independent expenditure dissemination dates are not 

specifically listed in section 104.14(bXlX fee Commission required the requesting oonunittees to 

maintain these Idnds of records under the authority of that provision because they were essential 

for enabling the Commission to veriQr the legal correctness of the committBes' lepoils of their 

permissible campaign receipts and expenses in the context ofan audit or other inspectioiL The 

same logic suppM requiring CQmmittees engaged in maldng independent expenditures to 

maintain the communications associated with the disbursements to enable tile Commission to 

verii^, and to difierentiate between, the committee's independent expenditures and its operating 

expenditures. 

If the Commission inteipieted the regulation narrowly to exclude all ^pes of potentially 

veiiQdiig documents not enumoaled in section 104.14(bXl). then the capacity of the Commission 

to vmify the accuracy and oompleleaesB of a Gonimitlee's reportmg would be severely restricted 

because not all infimnation ooittained in reports mqy be verified by recourse to the types of records 

enumeiaiedinsection 104.14(bXl). Forexample,theFederalElectionCampaipiActof 1971,as 

amended, and Commission regulations require committees to report the purposes of their 

disbursements. See 52 U.S.C. § 30104(bX4X (SX 11 C.F.R. §§ 104J(bX3); 104.9. Ihe 

Commission has provided examples of aooeptable purpose descriptions as "Minner expenses, 

media, salary, [arid] poUing." See, e.g., 11 C.F.R { 104.3(bX3XiXBX The kinds of bank records 

enumerated in section 104.14, however, would not include the type information that is required 

to verify that the Committee used the disbunements for "Minner expenses, media, salary, [and] 

polling." 

* In a tiihmquent unsnlmoui SMuwia of RMMH, the Conmiision concluded Hint It would no loqgcr 

consider copiM ofthe ortilBil rianed psyroil deduction wihoriBdon fbrni to be the lole idequxe mens of •ttaiying 

section i04.l4(bXI). SeeSuemmejfgamomtfCkelmmhHekatlE. Tamr, VieeCkxkmmReimtD. fonford 

flndCosuuhifanwiDavklki.Menu,StrwnT. WMm,ElkeL IFCMOUUAmdHmeA. VamSpeluenfyletlie 

Msawqfl.octtsirfJidw<St flspftyeei'FdC, MUR 5721, Audit Rcftnil OS-IO; RAD Rcftml 06L4)1 (lun. 13, 

2006). This levblonofthepolky does not, however, indieite disc ttiepqeoU deduction lutfiariBtion amis not 

•ppnoprirtslyhicindedeniong the documcniiiequhed to be moimnined under section 104.14(bXIX feeSMeBBeniof 

Polkirii] RecondMping R«|uhenieBl8 tbr Fsyroll Deduction AudnriationA 71 Fed. Reg. 38513 (Jul. 7,2006) 

(ilanedpiyielldediiixlaneiihoriaiionlbnni not the only idequsse proof Ibr meetings 104.14(bXlXhrtnwks>iBbi8 

them ii i SMBd lueorfteeping piactiGe end hi mnny GINS they mny eerve « best documenMlon ^deduction 

mshoriadonX 
Commeirii on ilie bnBrim Audit Report 

ConMrvdive M^jorlQf Find (LRA 916) 

Paged 

In this GRK, tbe Audit Mafrneeds to ascertain the nature of tbe diibunements in Older to 

detennine how they should have been leported, whether as operating expenditures, independent 

expenditures, or other disbursements. Because in most cases the text of the communication 

associated with the disbursement constitulBS the only evidence ofthcnature of the disbursement,"* 

and the Commission's regulations require the Committee to maintain and provide 'ihe necessaiy 

infbimstion... fiom which [hs] filed iqxMs and statements may be verified, explained, clarified, 

and checked fbr accuracy and completeness," h is essential that the Audit staff have access to this 

infbmialion and that committees maiiitain iL 

" Indeed, In pieviuni consneaM we provided to the Andft Dlviiion on levenl lARik we nned dnt ueing 

InvDloei alone to infer ttni dhbunemeaii on media espeniei were made tbr Independenl expendim wouM to 

leplly iwp|X"|xirto i" the atoence of the teat of the mnrinwd communkation. SMOoomenlBofOGCenlARoo 

theOolondo Republican Oonunlnee(LRA 961), received by Audit Diviiion on Dec. 11,20IS;Commeaii of OOCon 

IARcntheConaenutiveCnnpaianConuninec(LRA996XdaledNov.25,2015;CcnuiieniiofOOCcnlARcn 

TeaPBityExpreBaX)is(LRA9to)bdmedDec. 1,2015; id Cunuueiai of OOC on lAR on the lllincie Republican Party 

(LRA I006X dated Dec. 22,2015.