Final Audit Report of the 

Commission on the National 

Campaign Fmid 

February 4, 2008 - December 31, 2008 

Why the Audit 

Was Done 

Federal law permits the 

Conmiission to conduct 

audits and field 

investigations of any 

political conmiittee 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 

conmiittee 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. 

About the Committee (p. 2) 

The National Campaign Fund is a non-connected committee, 

headquartered in Laguna Niguel, California. For more 

information, see the chart on Conmiittee Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Loans Received 

o Other Receipts 

Total Receipts 

• Disbursements 

o Independent Expenditures 

o Operating Expenditures 

o Refunds of Contributions 

o Loan Repayments 

Total Disbursements 

$ 1,927,095 

5,000 

3,489 

$ 1,935,584 

$ 1,261,206 

605,312 

26,143 

5,000 

$ 1,897,661 

Commission Findings (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Failure to File Notices and Properly Disclose Independent 

Expenditures (Finding 2) 

Additional Issue (p. 4) 

• Reporting of Payments for Conununications 

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

Commission on the National 

Campaign Fmid 

February 4, 2008 - December 31, 2008 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Audit Hearing 1 

Part II. Overview of Committee 

Conunittee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Commission Findings 3 

Additional Issue 4 

Part IV. Commission Findings 

Finding 1. Misstatement of Financial Activity 5 

Finding 2. Failure to File Notices and Properly Disclose Independent 

Expenditures 7 

Part V. Additional Issue 

Reporting of Payments for Conununications 13 
Parti 

Background 

Authority for Audit 

This report is based on an audit of the National Campaign Fund (NCF) 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 conunittee that is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit under this subsection, the 

Conunission must perform an internal review of reports filed by selected committees to 

determine whether the reports filed by a particular conunittee meet the threshold 

requirements for substantial compliance with the Act. 2 U.S.C. §438(b). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and, as a result, this audit examined: 

1. the consistency between reported figures and bank records; 

2. the disclosure of individual contributors' occupation/name of employer; 

3. the disclosure of independent expenditures; and 

4. other committee operations necessary to the review. 

Audit Hearing 

NCF declined the opportunity for an audit hearing before the Conunission. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates 

• Date of Registration August 20, 2007 

• Audit Coverage February 4,2008^ - December 31,2008 

Headquarters Laguna Niguel, California 

Bank Information 

• Bank Depositories Three 

• Bank Accounts Three Checking Accounts 

Treasurer 

• Treasurer When Audit Was Conducted James V. Lacy 

• Treasurer During Period Covered by Audit James V. Lacy 

Management Information 

• Attended Conunission Campaign Finance 

Seminar 

Yes 

• Who Handled Accounting and Recordkeeping 

Tasks 

Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ February 4,2008 $ 0 

Receipts 

o Contributions from Individuals 1.927,095 

o Loans Received 5,000 

o Other Receipts 3,489 

Total Receipts $ 1,935,584 

Disbursements 

o Independent Expenditures 1,261,206' 

0 Operating Expenditures 605,312 

o Refunds of Contributions 26,143 

o Loan Repayments 5,000 

Total Disbursements $ 1,897,661 

Cash-on-hand @ December 31,2008 $ 37,923 

^ Although NCF registered with the Commission on August 20,2007, the initial bank activity occurred on February 4,2008. 

^ As a result of Finding 2 (p. 7), $1,061,853 of these disbursements meet the deflnition of independent expenditures. 
Part III 

Summaries 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

During audit fieldwork, a comparison of NCF*s reported financial activity with its bank 

records revealed that, for 2008, NCF understated reported receipts and disbursements by 

$69,339 and $100,887, respectively, and overstated ending cash-on-hand by $31,448. In 

response to the Interim Audit Report recommendation, NCF amended its reports to 

materially correct the misstatements. 

The Conunission approved the finding that NCF misstated its financial activity. 

(For more detail, see p. 5.) 

Finding 2. Failure to File Notices and Properly Disclose 

Independent Expenditures 

During audit fieldwork, the Audit staff ascertained that NCF disclosed independent 

expenditures, totaling $1,548,622, on Schedule E (Itemized Independent Expenditures). 

The Audit staff noted that only $1,261,206 of these expenditures appeared to meet the 

definition of independent expenditure and contained language expressly advocating the 

election or defeat of a clearly identified candidate. Of these independent expenditures 

NCF: 

• did not file 24/48-hour notices for $1,153,748 in a timely maimer and did not file 

any 48-hour notices for $51,130; and 

• did not properly disclose independent expenditures totaling $528,662 made (i.e., 

publicly disseminated) prior to payment as **memo" entries on Schedule E and as 

a debt on Schedule D (Debts and Obligations). 

In response to the Interim Audit Report recommendation, NCF provided information 

supporting its position that the purpose of its direct-mail letters was fundraising and did 

not require reporting as independent expenditures. Regarding the Audit staffs 

reconunendation that NCF submit and implement revised procedures for reporting 

independent expenditures, NCF indicated that it plans to terminate after the audit is 

completed. 

The Conunission approved the fmding that, for specific conununications, NCF failed to 

file notices and properly disclose independent expenditures. The Conmiission concluded 

that of the $1,261,206 in expenditures that the Audit staff identified, $1,061,853 should 

have been reported as independent expenditures. Therefore, the Commission approved a 

finding that NCF did not timely file 24/48-hour notices of $946,596 and did not file 48-
hour notices for $51,130 and did not properly disclose independent expenditures totaling 

$447,413 prior to payment as "memo" entries. (For more detail, see p. 7.) 

Additional Issue 

Reporting of Payments for Communications 

In Finding 2, the Audit staff initially identified $1,261,206 in communications appearing 

to meet the definition of an independent expenditure and containing language expressly 

advocating the election or defeat of a clearly identified candidate. The Commission could 

not reach a consensus on whether $199,353 of these conununications contained express 

advocacy and should be reported as independent expenditures. Thus, the Conunission 

did not approve by the required four votes that payments for these communications 

totaling $199,353, which were initially included in Finding 2, requured reporting as 

independent expenditures. 

Pursuant to Conunission Directive 70,^ this matter is discussed in the "Additional Issue" 

section. (For more detail, see p. 13.) 

Available at http://www.fec.gov/directives/directive_70.pdf. 
Part IV 

Commission Findings 

Finding 1. Misstatement of Financial Activity 

Summary 

During audit fieldwork, a comparison of NCF's reported financial activity with its bank 

records revealed that, for 2008, NCF understated reported receipts and disbursements by 

$69,339 and $100,887, respectively, and overstated ending cash-on-hand by $31,448. In 

response to the Interim Audit Report reconunendation, NCF amended its reports to 

materially correct the misstatements. 

The Commission approved the finding that NCF misstated its fmancial activity. 

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 calendar year; 

• the total amount of disbursements for the reporting period and for the calendar year; and 

• certain transactions that require itemization on Schedule A (Itemized Receipts) or 

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

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reconciled reported financial activity with bank 

records for calendar year 2008. The following chart outlines the discrepancies for the 

receipts, disbursements, and the ending cash balance. The succeeding paragraphs explain 

why the differences occurred. 

2008 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ February 4, 2008 

$0 $0 $0 

Receipts $1,866,245 $1,935,584 $69,339 

Understated 

Disbursements $1,796,773 $1,897,661 $100,887 

Understated 

Ending Cash Balance 

@ December 31, 2008 

$69,372' $37,923 $31,448 

Overstated 

^ This column and the discrepancy column do not total correctly. The reported ending cash balance at 

December 31,2008, is $100 less than the reported receipts minus the reported disbursements for the period 

due to a $100 discrepancy between the reported ending cash on one report and beginning cash on the 

succeeding report. 
The understatement of receipts resulted from unidentified differences that occurred 

primarily during the 2008 year-end report period. Based on a limited review of available 

records, it appeared that all contributor information received by the vendor that processed 

deposits of contributions may not have been forwarded to the vendor responsible for the 

data entry. 

The understatement of disbursements resulted from the following: 

• Disbursements not reported $ 96,398 

• Reported disbursements not supported by a check or debit (2,596) 

• Contribution refunds not reported 7,433 

• Amounts incorrectly reported (696) 

• American Express charges not reported 522 

• Unexplained difference fl74) 

Net Understatement of Disbursements $ 100.887 

The $31,448 overstatement of the ending cash-on-hand resulted from the misstatements 

described above. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff explained the misstatements and provided 

schedules to NCF's Treasurer and Assistant Treasurer, who agreed to amend reports as 

necessary. 

The Interim Audit Report reconunended that NCF: 

• Amend its reports to correct the misstatements noted above; and 

• Amend its most recently filed report to correct the cash-on-hand balance with an 

explanation that the change resulted from a prior period audit adjustment. 

Further, NCF should have reconciled the cash balance of its most recent report to 

identify any subsequent discrepancies that may affect the adjustment 

reconunended by the Audit staff 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, NCF filed amended reports for 

2008 that materially corrected the misstatements. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that NCF amended its 

reports to correct the misstatements. 

£. Committee Response to the Draft Final Audit Report 

In its response to the Draft Final Audit report, NCF did not address this matter. 
Commission Conclusion 

On August 23,2012, the Conunission considered the Audit Division Reconunendation 

Memorandum in which the Audit Division recommended that the Conunission adopt a 

finding that NCF misstated its financial activity for 2008. 

The Conunission approved the Audit staffs recommendation. 

Finding 2. Failure to File Notices and Properly Disclose 

Independent Expenditures 

Summary 

During audit fieldwork, the Audit staff ascertained that NCF disclosed independent 

expenditures, totaling $1,548,622, on Schedule E (Itemized Independent Expenditures). 

The Audit staff noted that only $1,261,206 of these expenditures appeared to meet the 

definition of independent expenditure and contained language expressly advocating the 

election or defeat of a clearly identified candidate. Of these independent expenditures 

NCF: 

• did not file 24/48-hour notices for $ 1,153,748 in a timely manner and did not file 

any 48-hour notices for $51,130; and 

• did not properly disclose independent expenditures totaling $528,662 made (i.e., 

publicly disseminated) prior to payment as "memo" entries on Schedule E and as 

a debt on Schedule D (Debts and Obligations). 

In response to the Interim Audit Report recommendation, NCF provided information 

supporting its position that the purpose of its direct-mail letters was fundraising and did 

not require reporting as independent expenditures. Regarding the Audit staff's 

recommendation that NCF submit and implement revised procedures for reporting 

independent expenditures, NCF indicated that it plans to terminate after the audit is 

completed. 

The Conunission approved the finding that, for specific conununications, NCF failed to 

file notices and properly disclose independent expenditures. The Conunission concluded 

that of the $1,261,206 in expenditures that the Audit staff identified, $1,061,853 should 

have been reported as independent expenditures. Therefore, the Conunission approved a 

finding that NCF did not timely file 24/48-hour notices of $946,596 and did not file 48-

hour notices for $51,130 and did not properly disclose independent expenditures totaling 

$447,413 prior to payment as "memo" entries. 

LfCgal Standard 

A. Definition of Independent Expenditures. The term "independent expenditure" 

means an expenditure by a person for a conununication expressly advocating the 

election or defeat of a clearly identified candidate that is not made in coordination 
with any candidate or authorized committee or agent of a candidate. 11 CFR 

§100.16. 

B. Disclosure Requirements - General Guidelines. An independent expenditiure shall 

be reported on Schedule E if, when added to other mdependent expenditures made to 

the same payee during the same calendar year, it exceeds $200. Independent 

expenditures made (i.e., publicly disseminated) prior to payment should be disclosed 

as "memo" entries on Schedule E and as a debt on Schedule D. Independent 

expenditures of $200 or less do not need to be itemized, though the conunittee must 

report the total of those expenditures on line (b) on Schedule E. 11 CFR 

§§104.3(b)(3)(vii), 104.4(a) and 104.11. 

C. Last-Minute Independent Expenditure Reports (24-Hour Notices). Any 

independent expenditures aggregating $1,000 or more, with respect to any given 

election, and made after the 20^ day but more than 24 hours before the day of an 

election, must be reported and the report must be received by the Conunission within 

24 hours after the expenditure is made. A 24-hour notice is required each time 

additional independent expenditures aggregate $1,000 or more. The date that a 

conununication is publicly disseminated serves as the date that the conunittee must 

use to determine whether the total amount of independent expenditures has, in the 

aggregate, reached or exceeded the threshold reporting amount of $1,000. 11 CFR 

§§104.4(f) and 104.5(g)(2). 

D. Independent Expenditure Reports (48-Hour Notices). Any independent 

expenditures aggregating $10,000 or more with respect to any given election, at any 

time during a calendar year, up to and including the 20th day before an election, must 

be disclosed within 48 hours each time the expenditures aggregate $10,000 or more. 

The notices must be filed with the Conunission within 48 hours after the expenditure 

is made. 11 CFR §§ 104.4(f) and 104.5(g)(1). 

Facts and Analysis 

A. Facts 

During audit fieldwork. Audit staff noted that NCF's initial filing for 2008 (the April 15* 

Quarterly Report) disclosed all expenditures as operating expenditures on Schedule B, 

Line 21(b). On July 11, 2008, NCF amended that report and disclosed most of the former 

operating expenditures as independent expenditures on Schedule E and Line 24 of the 

report. During the remainder of 2008, NCF filed reports that disclosed the majority of its 

disbursements as independent expenditures. 

NCF disclosed independent expenditures, totaling $1,548,622, on Schedule E. Most of 

these disbursements were for the printing and postage costs for direct mail solicitation 

letters that were disclosed as either in support of Rudy Giuliani or John McCain for 

President or in opposition to Hillary Clinton or Barack Obama for President. The Audit 

staff reviewed these expenditures to assess whether NCF properly reported them on 

Schedule E and if 24/48-hour notices were required to be filed. The review indicated that 

only $1,261,206 of these expenditures appeared to meet the definition of an independent 
expenditure and contained language expressly advocating the election or defeat of a 

clearly identified candidate. A review of the direct mail pieces and invoices for those 

expenditures ($1,261,206) revealed the following: 

• NCF did not file in a timely manner 24/48-hour notices of its independent 

expenditures for $1,153,748. In addition, NCF did not file any 48-hour notices 

for $51,130. 

• NCF reported the independent expenditures when the invoices were paid; some 

payments were weeks or months after the dissemination date of the printed 

material. For expenditures totaling $528,662, NCF should have disclosed 

independent expenditures as memo entries on Schedule E, filed with reports 

covering the dates when the materials were disseminated, and included a 

corresponding debt on Schedule D. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff addressed these matters and provided schedules 

detailing these expenditures to NCF representatives. NCF representatives stated that they 

would comply with the reconunendation. 

The Treasurer later emailed the Audit staff NCF's position regarding independent 

expenditures. The email stated: 

"Political fundraising letters that are not intended to influence a vote, not timed 

to a particular election, but which are intended solely to motivate a donation for 

the group (and which have words of express advocacy in them) should be 

excluded from the definition of independent expenditure for your extraordinary 

reporting purposes, as I stated to you. I have previously written to the FEC on 

these views and spoken to reporters about them as well. When the FEC pushes 

administrative overhead activities like general fundraising into IE status, it creates 

a costly regulatory burden for small donor committees like ours that do not have 

the fmancial backing, permanent staff, and infrastructure to keep up with the 

filings. Hardly any public purpose is served by the extraordinary reporting 

requirements imposed on just a fundraising letter; and the public is indeed mislead 

(sic) by the artificial inflation in dollars spent on lEs the current requirements 

cause. In the last election, I fielded questions about the National Campaign Fund 

from reporters of the Huffington Post and the New York Times who relied on the 

IE expense compilations as indications of actual IE activity in direct mail. I told 

both that the FEC requirements mislead the public in the true nature of the 

expenditures, and both the reporters agreed with me." 

Subsequent to the exit conference, the Audit staff made additional requests to NCF for 

documentation and explanations to clarify whether some of the conununications resulted 

in independent expenditures. NCF was asked to clarify how some of the conununications 

were distributed and to provide the content of hyperlinks that were contained in those 

conununications. In addition, NCF was requested to explain why some of the 

communications did not appear to correlate with the mailing dates. NCF responded by 
10 

stating that the communications in question were "e-mailings" and provided the content 

for one of the e-mailings. NCF also explained that it revised the conununication multiple 

times for each mailing but did not keep previous versions of the conununication. and 

therefore was unable to provide the previous versions. NCF's responses have been 

considered in the analysis of independent expenditures presented above. 

The Interim Audit Report recommended that NFC take the following action: 

• Provide any documentary evidence that would demonstrate that these 

disbursements were not independent expenditures and therefore did not require 

24/48-hour notices; and 

• Submit and implement revised procedures for reporting independent expenditures, 

as well as for tracking dissemination dates for such expenditures to allow for 

timely filing of 24/48-hour reporting notices. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation. NCF offered backgroimd 

information for why it was created and the purpose of its direct-mail fimdraising letters. 

NCF explained that it was formed in 2008 as a non-connected, political action committee 

(PAC) that was not supported by any sponsoring organization such as a labor union or 

corporation. There was no permanent staff, office or office equipment. It was formed 

with the intemion of raising funds to allow it to participate in the 2008 general election by 

making direct contributions to candidates for federal office. NCF indicated that it was 

the epitome of a "grass roots" attempt to participate in the 2008 federal elections. 

NCF explained that its direct-mail advisors obtained lists of proven donors to Republican 

and conservative causes and tested various content appeals in the letters to these donors. 

The various tests included content with references to elected officials and presidential 

candidates to clue the recipient audience that NCF was a conservative Republican PAC 

worthy of their support. NCF stated that the purpose of these mailings was not to 

intervene in any election. NCF indicated that the facts demonstrated that: the timing of 

all of its mailings had no reference to the timing of primary elections during 2008; the 

content of the letters, other than sometimes including some words considered "express 

advocacy" by the Commission, did not urge the recipient audience to vote for any 

particular candidate; and the audience was selected for its fundraising value, with no 

consideration for its electoral value. Thus the expenditiures' content, timing and 

distribution, and audience served a fimdraising purpose but not an electoral purpose. 

NCF disagreed that any of its direct-mail fundraising letters constituted independent 

expenditures. NCF noted that the Commission defines an independent expenditure at 11 

CFR §100.16 as a communication expressly advocating the election or defeat of a clearly 

identified candidate. NCF acknowledged that some of its mailings did include words of 

express advocacy. However. NCF thought that if the Commission considered all of the 

facts, it should agree that NCF's fundraising letters were not independent expenditures 

and that the special reporting rules applicable to independent expenditures (such as the 

24/48-hour notices or memo entries) should not apply. NCF stated that it believes that 

durect-mail fundraising letters should be excluded from the definition of independent 
11 

expenditures, and that the intent of the regulation was not to include direct-mail 

fimdraisuig expenditures as independent expenditures. NCF urged the Commission to 

reform its reporting requirements for grass-roots organizations that engage in direct-mail 

fundraising since NCF believes that these letters are not independent expenditures. NCF 

indicated diat a decision has been made that the time requirements, coordination and 

record keeping are not worth the effort of continuing to participate and as such, plan to 

terminate the committee after the audit is completed. 

The Audit staff does not dispute that NCF's intention was to raise funds. However. NCF 

acknowledged, and the Audit staff agreed, that some of these letters included express 

advocacy language such as "Vote for John McCain." Since these expenditures meet the 

definition of an independent expenditure and the regulation does not exclude durect-mail 

fundraising letters from the definition, the Audit staff believes that the documentary 

evidence provided does not support NCF's assertion that none of these expenditures are 

independent expenditures. 

D. Draft Final Audit Report 

The Draft Final Audit Report concluded conununications totaling $1,261,206 appeared to 

meet the definition of independent expenditure and contained language expressly 

advocating the election or defeat of a clearly identified candidate. For some of diese 

independent expenditures, NCF failed to file or timely file 24/48- hour notices and 

properly disclose these independent expenditures as "memo" entries. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, NCF maintained its position that these were 

fundraising letters not intended to influence a vote. The response raised three points as to 

why the communications at issue are not independent expenditures: 

• First, NCF contended that the communications were not independent 

expenditures because the timing of the communications was not related 

to the timing of the 2008 primary elections. The response referenced 

Internal Revenue Service Ruling 2004-6 (IRS 2004-6) which applied a 

"facts and circumstances" test to determine whether a communication by 

a tax-exempt organization is subject to penalty for engaging in political 

campaigns. The factor cited therein was whether "the timing of the 

communication coincides with an electoral campaign." 

• Second, NCF stated that the direct-mail letters did not target voters in a 

particular election. NCF sought lists of proven donors to Republican and 

conservative causes without regard to whether the listed donors had any 

propensity to vote, or were even registered voters. Again the response 

cited IRS 2004-06 and also pointed out that one of the factors considered 

was whether the conununication targeted voters in a particular election. 
12 

• Finally, NCF's response asserted that the occasional inclusion of express 

advocacy references in the direct-mail letters should not mean that the 

letters meet the definition of independent expenditures. 

The Audit staff was not persuaded by NCF's response. The IRS 2004-06 

standards cited are not applicable because the standards for determining when a 

communication includes express advocacy are set forth in the Commission's 

regulations at 11 CFR §100.22. The Revenue Ruling and the Commission's 

regulations serve different purposes. The Revenue Ruling is focused on whether 

certain organizations can engage in specific kinds of activities and maintain their 

tax-exempt status, whereas the Conunission's express advocacy regulations serve 

as one of the elements for determining whether a communication will be 

considered an independent expenditure (See 11 CFR. §100.16(a)). In addition, 

the Conunission has not incorporated the standards from the Revenue Ruling by 

reference. Therefore, the standards of timing of the conununication and targeting 

of voters should not be used in determining whether the conununications m this 

case are independent expenditures. 

With respect to NCF's argument about the occasional inclusion of express 

advocacy references in the letters, the Conunission's regulations on express 

advocacy do not include a limitation or an exception for only occasional inclusion 

of express advocacy. A communication containing express advocacy for a clearly 

identified candidate that is not coordinated with a candidate or candidate's 

committee or its agents, or a political party conunittee or its agents, and which is 

not otherwise exempt, is an independent expenditure. 

The Audit staff maintains that NCF did not timely file 24/48-hour notices for 

$1,153,748; did not file 48-hour notices for $51,130; and, did not properiy 

disclose independent expenditures totaling $528,662 prior to payment as memo 

entries. 

Commission Conclusion 

On August 23,2012, the Conunission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

fmding that NCF did not timely file 24/48-hour notices of $1,153,748 and did not file 48-

hour notices for $51,130^ and did not properly disclose independent expenditures totaling 

$528,662 prior to payment as "memo" entries. 

The Commission approved this finding with respect to specific communications (See 

Additional Issue below). The Commission concluded that of the $1,261,206 in 

communications discussed above. $1,061,853 should be considered to contain express 

advocacy. Therefore, the Commission approved a finding that NCF did not timely file 

24/48-hour notices of $946,596 and did not file 48-hour notices for $51,130 and did not 

^ Due to a formula error, the amount had been improperly presented as $33,485 in the Interim Audit Report, 

the Draft Final Audit Report and the Audit Division Recommendation Memo. 
13 

properly disclose independent expenditures totaling $447,413 prior to payment as 

"memo" entries. 

Part V 

Additional Issue 

I Reporting of Pa3rments for Communications 

Summary 

In Finding 2, the Audit staff initially identified $1,261,206 in communications appearmg 

to meet the definition of an independent expenditure and containing language expressly 

advocating the election or defeat of a clearly identified candidate. The Commission 

could not reach a consensus on whether $199,353 of these communications contained 

express advocacy and should be reported as independent expenditures. Thus, the 

Commission did not approve by the required four votes that payments for these 

conununications totaling $199,353, which were initially included in Finding 2, required 

reporting as independent expenditures. 

Pursuant to Commission Directive 70, this matter is discussed in the "Additional Issue" 

section. 

Legal Standard 

A. Definition of Independent Expenditures. The term "independent expenditure" 

means an expenditure by a person for a conununication expressly advocating the election 

or defeat of a clearly identified candidate that is not made in coordination with any 

candidate or authorized committee or agent of a candidate. 11 CFR §100.16. 

B. Disclosure Requirements - General Guidelines. An independent expenditure shall 

be reported on Schedule E if, when added to other independent expenditures made to the 

same payee during the same calendar year, it exceeds $200. Independent expenditures 

made (i.e., publicly disseminated) prior to payment should be disclosed as "memo" 

entries on Schedule E and as a reportable debt on Schedule D. Independent expenditures 

of $200 or less do not need to be itemized, though the committee must report the total of 

those expenditures on line (b) on Schedule E. 11 CFR §§104.3(b)(3)(vii), 104.4(a) and 

104.11. 

C. Last-Minute Independent Expenditure Reports (24-Hour Notices). Any 

independent expenditures aggregating $1,000 or more, with respect to any given election, 

and made after the 20^ day but more than 24 hours before the day of an election, must be 

reported and the report must be received by the Commission within 24 hours after the 

expenditure is made. A 24-hour notice is requured each time additional independent 

expenditures aggregate $1,000 or more. The date that a communication is publicly 

disseminated serves as the date that the committee must use to determine whether the 
14 

total amount of independent expenditures has. in the aggregate, reached or exceeded the 

threshold reporting amount of $1,000. 11 CFR §§ 104.4(f) and 104.5(g)(2). 

D. Independent Expenditure Reports (48-Hour Notices). Any independent 

expenditure aggregating $10,000 or more with respect to any given election, at any time 

during a calendar year, up to and including the 20th day before an election, must be 

disclosed within 48 hours each time the expenditures aggregate $10,000 or more. The 

notices must be filed with the Commission within 48 hours after the expenditure is made. 

11 CFR §§104.4(f) and 104.5(g)(1). 

Facts and Analysis 

A. Facts 

As detailed in Finding 2 above, during audit fieldwork, the Audit staff identified 

conununications totaling $1,261,206 that possibly met the definition of an independent 

expenditure. The Commission could not reach a consensus on whether $199,353 of these 

communications contained express advocacy and should be reported as independent 

expenditures. As independent expenditures, the payments for these conununications 

would necessitate certain disclosure requirements including the filing of 24/48-hour 

notices. 

B. Interim Audit Report & Audit Division Recommendation 

At the exit conference, the Audit staff presented this matter as a finding for the failure to 

file notices and properly disclose independent expenditures. NCF representatives stated 

that they would comply with the recommendation. 

The Interim Audit Report included these communications in Finding 2 and the Audit staff 

recommended that NCF take the following action: 

• Provide any documentary evidence that would demonstrate that these 

disbursements were not independent expenditures and therefore did not require 

24/48-hour notices; and 

• Submit and implement revised procedures for reporting independent expenditures, 

as well as for tracking dissemination dates for such expenditures, in order to allow 

for timely filing of 24/48-hour reporting notices. 

C. Committee Response to Interim Audit Report 

As detailed in Finding 2 above, NCF's response to the Interim Audit Report provided 

various reasons for why the payments for tiiese communications should not be reported 

as independent expenditures. 

D. Draft Final Audit Report 

The Draft Final Audit Report concluded that NCF failed to file 24/48-hour notices and 

properly disclose independent expenditures totaling $1,261,206. As detailed in Findmg 2 

above. NCF's response to the Draft Final Audit Report provided various reasons for why 

the payments for these communications should not be reported as independent 

expenditures. 
15 

Commission Conclusion 

On August 23.2012, the Conunission considered the Audit Division Reconunendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

finding that NCF failed to file notices and properly disclose independent expenditures. 

Of the communications identified in Finding 2 totaling $1,261,206. the Commission did 

not approve by the required four votes that payments for communications totaling 

$199,353 required reporting as independent expenditures. The Conunission could not 

reach a consensus on whether conununications totaling $199,353 contained expressed 

advocacy and should be reported as independent expenditures. 

Pursuant to Conunission Directive 70. this matter is presented as an "Additional Issue" 

section.