FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

April 8,2011 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer 

Acting Staff Director 

From: Patricia Carmona 

Chief Compliance Officer 

Joseph F. Stoltz 

Assistant Staff 

Audit Division 

Alex Boniewicz 

Audit Manager 

By: Tesfai Asmamaw "77$ 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on Freedom's Defense 

Fund (FDF) (A09-21) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit 

Reports), the Audit Division recommends the Commission approve the finding as 

presented in the attached Draft Final Audit Report (DFAR). The Office of General 

Counsel has reviewed this memorandum and concurs with the recommendation. 

FDF declined the opportunity for an audit hearing and made no further comment 

pn the finding. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared 

within 30 days of the Commission's vote. 

Should an objection be received, Directive No. 70 states that the Audit Division 

. Recommendation Memorandum will be placed on the next regularly scheduled open 

session agenda. 

Documents related to this audit report can be viewed on Voting Ballot Matters. 

Should you have any questions, please contact Tesfai Asmamaw or Alex Boniewicz at 

694-1200. 

Attachment: 

- Draft Final Audit Report on the Freedom's Defense Fund 

cc: Office of General Counsel 
Draft Final Audit Report 

of the Audit Division on 

Freedom's Defense Fund 

January 1, 2007 - December 31, 2008 

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 ,.r^'^:i 

appears not to hay&imet 

the threshold 

requirements for 

About the Committjeie (p. 2) 

Freedom's Defense Fundls sf non-connected and multi-candidate 

committee headquartei^^^iFi;Washington, DC. For more 

information, see th'Cchkrt daQommittee Organization, p. 2. 

Financ£iU>Activity (p. 2) 

• Receipts '"^-S;;^ 

..o Contributions fijcim.Individuals 

ej*^;^Qffsets to (ipetkiing 

"••; Expenditures "' ^: 

T:0itai Receipts '-'^^ 

Dis(uirsementsi;V.,,. . 

o bj)erating'fExi^^^^ •' 

o CoritribulEjiOris toTbderal 

Cahdi(iate Committees and 

Other'-^plitical Committees 

determines whethieit^the, 

coriii^ecompliedS^,. 

the linfit^tions, 

prohibiti6&and 

disclosure requirements 

ofthe Act. "^-[r)'. 

Othe'r^isbursements 

''$i!Totai Disbursements 

$2,215,319 

7,056 

$2,222,375 

$ 2,079,920 

62,894 

62,499 

2,600 

24,000 

$ 2,231,913 

Findihg and Recommendation 

Disclosure of Independent Expenditures 

(p. 3) 

Future Action' 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

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

Audit Division on 

Freedom's Defense Fund 

January 1, 2007 - December 31, 2008 

. i .V 

s. .: • • • • \ 

• •/ .1 .i ?" 

•<fi,'.' 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Page 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summary >|2 

Finding and Recommendation ::-.f::^^ 

Part IV. Finding and Recomni^ndatio^L 

Disclosure of Independent Expenditures 

'•\*K*=::-.. 

•'•..•4>vi 

'•Uv.>;!\. ii\-.''y:.-*'^l'.t,, 

•.vvi:v.^v.L;-v..^:'&^i;fiS'A=.^. *•^;T^.^•• • 

••J^j',.;; 

MP 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Freedom's Defense Fund (FDF), 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 coninifittee that is required to file a 

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

Commission must perform an intemal review of reports filed by selected committees to 

determine if the reports filed by a particular committed inl^^^^^^ threshold requirements 

for substantial compliance with the Act. 2 U.S.p, ..§4^38(b).' ^ 

Scope of Audit "^S-•. 

Following Commission approved procedurei$^:^he Audit staff evaluate(i|(:arious risk 

factors and, as a result, this audit examined: "Cii; ;, ^\ • 

1. The consistency between reported figures arid banki^cbrds; 

2. The disclosure of individual -Qoiil^ibutors' occupatiori/name of employer; and, 

3. The disclosure of disbursemenits-t'' ^v^!. ' H-.. 

.4-. '-(Sli^*-. 'A;^ 

'••OX.,. 
Part II 

Overview of Committee 

Committee Organization 

Important Dates Freedom's Defense Fund 

• Date of Registration June 7,2004 

• Audit Coverage January 1,2007 - December 31,2008 

-if: - . 

Headquarters :!;W8ishington, DC 

'. ••' Bank Information i:^. ' 

'•; 

..." A'" 

• Bank Depositories .^^^ thfee 

• Bank Accounts ^r ivl/^' FourCliecking Accounts 

Treasurer ji^'v 

• Treasurer When Audit Was Conducted -C-sV: ,§cott B. Mackenzie 

• Treasurer During Period Covered by Audit .^'l . / .'Scott B. Mackenzie'. 

Management Infbrmation ^^^^ . ' ^ 

• Attended FEC Campaign Finance SemTn^, ;Ves 

• Used Commonly Available Campaign Matiagemeriit^Softwv^ 

Package •'i^&^^^h ^M-^'---

Yes.v> 

•^sX:• 

• Who Handled Accourifirig and Ree'ordkeepingTaslcs" m i d Staff 

Oytrview^pf Fiifftncial Activity 

"^ife:-'•^^•(/l^^^ Amounts) 

Cash oh hand ® JanuaFyrli.2007 ;;vv' f= $ 22,538 

Receiptis-'f:^:. N^^-h, 

o Contributions from Individiifal's. $2,215,319 

o Offsets to'Operating Expenditures "^i.v"* 7,056 

Total Receipts-'i^^.. $ 2,222,375 

Disbursements ^^^•^•.. MW^' 

o Operating Expenditure!&\V^r-.':^ $ 2,079,920 

o Contributions to Federal Candidate Committees and 

Other Political Committees 62,894 

o Independent Expenditures 62,499' 

o Refund of Contributions 2,600 

o Other Disbursements 24,000 

Total Disbursements $ 2,231,913 

Cash on hand @ December 31,2008 $ 13,000 

^ As a result of the committee's response to the interim audit report, this amount, as well as the amount for operating 

expenditures, has been revised. See page 4. 
Part III 

Summary 

Finding and Recommendation 

Disclosure of Independent Expenditures 

During audit fieldwork, the review of disbursements identified expenditures for media, 

which appeared to be independent expenditures tiiat FDF disclosed as operating 

expenditures. In response to the Interim Audit Report recpMifiiendation, FDF provided 

additional information that established $62,499 in indejjjettdent expenditures. FDF 

amended its reports to disclose all but $11,869 as indlpena^jjit e^^ Appropriate 

o/iMQ_u«.. 24/48-hourr «r»t;o*»c wprp nnt filed for indeoendent exfienditiires.totaling as much as notices were not filed for independent expenditure^ totaling as much as 

$43,498. J2^ " 

(For more detail, see p. 4) ' 

^5 ^^^^ 

* 5?: 
Part IV 

Finding and Recommendation 

I Disclosure of Independent Expenditures 

Summary 

During audit fieldwork, the review of disbursements identified expenditures for media, 

which appeared to be independent expenditures that FDF disclosed as operating 

expenditures. In response to the Interim Audit Report recprrimendation, FDF provided 

additional information that established $62,499 in independent expenditures. FDF 

amended its reports to disclose all but $11,869 as ilM^pendeiitexpendit Appropriate 

24/48-hour notices were not filed for independeM-expendituresiiotaling as much as 

$43,498. J^' ' '""^-ip-^r 

Legal standard .-^ 

A. Independent Expenditures. An indepen(ifnt|expendiii^^ is an expe%j^i]ture made for 

a communication expressly advocating the electibn%^^efeat of a clearly ideritified 

candidate that is not made in codj^etatibn,. consultatibh;:6r concert with, or at the request 

or suggestion of, a candidate, a cahdidatie's authorized committee, or their agents, or a 

political party or its agents. ^ • •',,. ' : 

A clearly identified ;C^didate^is one whQse.^name, hi photograph or drawing 

appears, or whose identity is apparent thrdugh/unambiguoiis reference, such as "your 

Congressman," or through an uHatmbiguousilpference to his or her status as a candidate, 

such as "the Democr^i^!;presidehiial ,nominee';'vX>r "Republican candidate for Senate in 

inis siaie;r-,>>-^.-^.vi;--. •'^iz^.^vo,.^ 

Expressly advocatin^^me^ns any^communic^tio^ that: 

• {^.Uses phrases sudh,as "v6i|Afor. the President" or "re-elect your Congressman" or 

66rri.inunications of c;ampaigtl^sljqgan(s) or individual word(s), which in context 

can Imye no other re^asi^nable meaning than to urge election or defeat of one or 

more clearly identifi^d/candidates; or 

• When takeii as a whole/and with limited references to extemal events, such as 

proximity to^the^Atect-ion, could be interpreted by a reasonable person only as 

advocating the eieJtion or defeat of one or more clearly identified candidates. 11 

CFR §§100.16(a), 100.17 and 100.22. 

B. Reporting Independent Expenditures. When independent expenditures to the same 

person exceed $200 in a calendar year, the committee must report on Schedule E 

(Itemized Independent Expenditures): 

• Amount; 

• Date when the expenditures were made; 

• Name and address of the payee; 
• Purpose (a brief description of why the disbursement was made); 

• A statement indicating whether the independent expenditure was in support of, or 

in opposition to, a particular candidate, as well as the name of the candidate and 

the office sought (including State and Congressional district, when applicable); 

and, 

• A certification, under penalty of perjury, as to whether the independent 

expenditure was made in cooperation, consultation or concert with, or at the 

request or suggestion of, any candidate or authorized committee or agent of such 

committee. 2 U.S.C. §434(b)(6)(B)(iii) and 11 CFR §104.3(b)(3)(vii). 

C. 24/48-Hour Reporting Notices for Independent Expenditures. Political 

committees and others making independent expenditures at!any time during the calendar 

year—up to and including the 20th day before an election^rnust disclose this activity 

within 48 hours of the date on which the public comrhunicatibn is disseminated each time 

that the expenditures aggregate $10,000 or more; vtn addition, ih'cl^pendent expenditures 

that aggregate $1,000 or more during the 1.2$J;20 days—up to 24 Kbursr-before an 

election require disclosure within 24 hoursipUowing the dissemination date. 2 U.S.C. 

§434(d) and (g); 11 CFR §104.4(b). "^g^^ \] 

D. Requirements for Maintainih|^Re^cords. Repi^rting committees are required to 

maintain records that provide, in ^uMbient^^detail, the information from which the filed 

reports may be verified. 11 CFR §Mi.l4(b|(l)ifc,.^ 

. •*'* ••vi-" "'• 'i'.. 

Facts and Anal3j«is-t::g;v .•;f:.^Z'-<yf;i:.^ 

A. Facts "\-:v 'v-i'^' 

During audit fieldwbrkVJEhe Audit staff reviewiecl FDF's disbursements to identify any 

independent.:expenditure; tli^t:Had proj^efly reported. FDF disbursed $97,896 for 

media biiys; repbrting $l9,'66:iras Independenjt Expenditures on Schedule E and in 24/48-

hoiir .h6tices, and $7:$.^^5 as 'dtperating expe'riditures. A review and analysis of these 

expefiditures revealed'th'e^followiriliv 

1. MediiEijiBuys - Independent Expefnditures 

An ad, titled-'What Murtha Says, Out of Touch" (Murtha ad), was aired in 

Pennsylvania '^^^.^l^^jixm to 11/03/2008, at a cost of $60,397. Ofthis amount, 

FDF reported $l§<Opl-^"S expenditures and the remaining $41,396 as 

operating expenditiu'es. The ad clearly identified Rep. John Murtha and thenPresidential candidate Barack Obama, and expressly advocated their defeat. The ad 

also clearly identified then-Presidential candidate John McCain and Vice Presidential 

candidate Sarah Palin, and advocated their election. The Audit staff concluded that 

the Murtha ad was an independent expenditure and FDF should have reported it as 

such and filed and the appropriate 24/48-hour notices. 

The Murtha ad begins with a narrator's declaration that "Barack Obama and Jack 

Murtha have little respect for the people of Westem Pennsylvania." It then contains 

audio clips of Obama and Murtha making negative statements about Westem 
Pennsylvanians. Murtha is heard saying: "There's no question that Western 

Pennsylvania is a racist area," and Obama is heard saying that Pennsylvanians "get 

bitter and cling to guns and religion." Next, the text on the screen reads "MURTHA 

AND OBAMA DON'T REPRESENT OUR VALUES," as tiie narrator says: "On 

election day, tell Jack Murtha and Barack Obama what we think of them." The 

narrator ends with the statement "Vote Republican" while a picture of McCain and 

Palin appears and the text on the screen reads "VOTE REPUBLICAN TUESDAY, 

NOVEMBER 4TH." ^ The ad concluded with an appropriate disclaimer for an 

independent expenditure. 

Murtha Ads with Dissemination Dates ,i^^"y' 

Of the $60,397, FDF provided dissemination irifoiination for Murtha ad costs 

totaling $34,028. These ads ran from October 21 tl^ough November 3,2008. 

Notices filed for reported independent expenditures of :$19,001 disclosed a 

communication date of October 29,2p.(l|;;^ihdicating that^ese notices are related 

to ads for which dissemination datefl^ipre made available.'llowever, the Audit 

staff was unable to associate the dissemination date and amounts .on the 24/48-

hour notices with dates and amounts 6n|th9 suppo^ng documeritatipn. The Audit 

staffs review of the avail^^jble informatio'^nlnidK^lted^^^ FDF faileci|t^:;properly 

disclose independent expenditures and file 2%hroii'r notices for Murth^£iL'ad costs 

totaling $15,027 ($34,02^^iiii01). "^^gl^j,. 

Murtha Ads without Dissemination Dates 4 ^^ 

Disseminatiojri'^mfiSrmation was'^fi^t provid?!^^ remaiining $26,369 ($60,397-

$34,028), which liririited the Audit steff |vafuati6ri: 6^^^ 24/48-hour notice 

requirements. Appropriate 24/48-notices appear to b& required and were not filed. 

FDF should have .disclosed these costi.as independent expenditures rather than 

openitlng experiditure^V^ 

;=.2;;|;tJndocumVnt€rd - Appafeint^ndependent Expenditures 

The:i^udit steff noted^fhi|t medi^dsexpenditures reported as operating expenditures, 

totelin§l$37,499 ($97,l||^- $60,2f§S), lacked documentetion and could not be 

associated ^^ith a specifippid or dissemination date. 

B. Interim Audit iSepoFf|%Audit Division Recommendation 

The Audit steff addresiseflitliese expenditures at the exit conference and provided the FDF 

representetive with a schedule deteiling these expenditures. The FDF representetive 

stated he would review the expenditures and contact the media vendor to request deteiled 

analysis of the media buys. Subsequent to the exit conference, FDF provided some 

additional documentetion, which were considered in the above analysis. 

^ "[1]t provides in effect a specific directive: vote for these pictured candidates. The fact that this message 

is marginally less direct than 'Vote for Smith' does not change its essential nature." FEC v. Massachusetts 

Citizens for Life Inc. ("MCFL") 479 U.S. 238,239 (1986); 11 C.F.R. § 100.22(a). 
In the Interim Audit Report, the Audit staff recommended that FDF teke the following 

action: 

• Provide any other documentary evidence that would demonstrate that these 

disbursements were not independent expenditures; or 

• Provide documentetion that deteils dissemination dates for those media buys that 

lack such information and, for those expenditures ($37,499) for which no 

documentation has been made available; 

• Provide documentation that associates these costs with specific media ads and, if 

the costs are related to the Murtha ad or communications that contein express 

advocacy, deteils dissemination dates; 

• Submit and implement revised procedures for r^pprtirig independent expenditures 

and for tracking dissemination dates for such.experiditures to allow for timely 

filing of 24/48-hour reporting notices, as rex]Oii;ed;'and 

• Amend its reports to correct the reporting ;ofi1ndependen^^^ as noted 

above. ^r^iM^' 

C. Committee Response to the Int^Tim Audit Report f 

With respect to the $37,499 in expenditures lackihg dociim.entetion to detertnine the 

nature of the expense, FDF provi|[j^^d, informatiori'ii^^^^ some of these -co^ts with the 

Murtha ad ($2,102) and demonstrat^n^^t^^ the other$||$35,397) were not independent 

expenditures. '-'Iv^' '^^S-T.v,. ^i^h;. 

'••;'^i^v. 

FDF submitted written^j)ro^edures for%porting4naep^^^^ and for 

tracking disseminatiBij-aStfe'^tf^^^ such expenditurf^fe^ filing of 24/48-

hour notices, and^ihdicated itk:j|itent to irripleil^^nf^ ptipcedures immediately. 

FDF amended its repbi^s.to di.sf^lpse. independent expenditures toteling $50,630. 

y. ':'•••"•':••.<••*.. '^•^^\^'.\^y^?^"-'f}^'C^^^,.^ 

D. ,I>ia[ft'Final Audit I^e^rt '"'-tfe^,. --^ 

Based on the additibnal>inforinM^ submittedih FDF's response, the Audit steff concurs 

that of the previously unbbcumente|;^$37,499 in media expenditures, only $2,102 relates 

to the Murtha ad and the ^•^st}pf the^jj^lbursements were not independent expenditures. 

Given the information now%^^ilable, independent expenditures related to the Murtha ad 

toteled $62,4MJ($j60,397 + |2|l02). FDF amended its reports to disclose independent 

expenditures of $50,630, which included the $19,001 that had been previously disclosed, 

as noted above. FDF^didfhotdisclose independent expenditures toteling $11,869, as 

recommended. Audit^ff'^idvised FDF's representetive of the difference but has 

received no further explanation from the committee. 

In connection with the $62,499 in independent expenditures for the Murtha ad, it 

appeared that FDF did not file appropriate 24/48-hour notices for independent 

expenditures toteling $43,498 ($62,499 less $19,001 in notices filed, as noted above). 

FDF's response did not include dissemination dates for independent expenditures toteling 

$28,471.