FEDERiM ELECTION COMMiSSION 

WASHIN(^N, PiC; 20463 

MEMORANDUM 

TO; Patricia C. 

Chief Comp] 

Thomas E. F 

Assistant Si 

Audit Divisioi 

FROM: 

Lorenzo Hoi 

Assistant General 

Compliance 

OCTtStDB 

Crrock 

iance Officer 

intermister 

Director 

>n 

Itaff 

AdavNoti^ 

Associate General Counsel 

Policy Divis: on 

oway i-K ht 

Counsel 

Advice 

Margaret J. Foiman 

Attorney 

SURJECT: Proposed Interim Audit Report on the Freedom's Defense Fund (LRA 1030) 

1. INTRODUCTION 

The Office of the Ge neral Counsel has reviewed the proposed Interim Audit Report 

("proposed lAR") on the Fn edom's Defense Fund ("FDF"). The proposed JAR contains four 

findings: Misstatement of F inancial Activity (Finding 1), Disclosure of Occupation and Name of 

Employer (Finding 2), Repo ting of Independent Expenditures (Finding 3) and Recordkeeping for 

Communications (Finding 4 .' We concur with the findings, and comment on Findings 3 and 4. If 

you have any questions, pleue contact Margaret J. Forman, the attorney assigned to this audit. 

' We recommend that th( 

may eventually decide to pursue 

(bX6). 

Commission consider this document in Executive Session because the Commission 

ah investigation of matters contained in the proposed lAR. 11 C.F.R. §§ 2.4(a) and 
LRA 1030 Freedom's Defense Fiund 

lAR Legal Comments 

Page 2 of S 

II. FUNDRAISING C OMMUNICATIONS AS INDEPENDENT EXPENDITURES 

In Finding 3 of the 

independent expenditures 

media-related expenditures 

ScheduleB, Line2lb. The 

have been disclosed on ScKedul 

conference that these exper 

expenditures. 

iroposed lAR, the Audit Division noted that PDF disclosed 

tl)taling $385,619 on Schedule E; however, PDF also made apparent 

totaling $868,015 that were disclosed as operating expenditures on 

^udit Division concluded that these media-related expenditures should 

e E as Independent Expenditures. PDF responded at the exit 

ditures were fundraising expenditures, and not independent 

We concur with the 

communications should ha' 

solicitations consisting of e 

example, in the audit of the 

communications constitute! 

Audit Division that the costs associated with these media-related 

e been disclosed on Schedule E as Independent Expenditures. 

Preliminarily, FDF's assert on that fundraising communications are exempted from disclosure as 

independent expenditures has no basis in law. The Commission has found that fundraising 

cpress advocacy should be reported as independent expenditures. For 

National Campaign Fund, the Commission found that 41 fundraising 

express advocacy and therefore were independent expenditures. See 

Commission Certification cjf Audit Division Recommendation Memorandum, The National 

Campaign Fund, A09-26, A ugust 27,2012. In the audit of the Legacy Committee Political Action 

Committee, the Commissio i found that 36 fundraising communications constituted express 

advocacy and therefore wei e independent expenditures. See Commission Certification of Audit 

Division Recommendation Memorandum, The Legacy Committee Political Action Committee, 

A09-22, June 11,2012. In x>th the National Campaign Fund audit and The Legacy Committee 

Political Action Committee! audit, the communications found to have been independent 

expenditures were in the fo: m of express advocacy fundraising letters akin to those at issue hm.^ 

Fi^ermore, nothing in the Commission's regulations suggests that a fundraising purpose is an 

exception to a communicatibn constituting express advocacy and therefore requiring disclosure as 

an independent expenditure;. See Audit of The National Campaign Fund and Audit of the Legacy 

Comrtiittee Political Action 

failed to file independent er 

advocated the election/defeat of candidates). 

III. RECORDKEEPING FOR COMMUNICATIONS 

rnail 

This finding concenis 

$90,814 that the Committee 

mail-creative" and "direct 

provided by the Committee 

determine whether these 

should have been reported 

icatei 

' The treasurer of FDF, 

Committee Political Action Comi 

Committee, See also MUR 5809 (Christian Voter Project) (Committee 

penditure notices for the costs of fundraising letters that expressly 

apparent communication-related expenses totaling approximately 

reported as operating expenditures with the purposes of "direct 

- postage." The finding concludes that the documentation 

relating to these expenses was insufficient to enable the Audit staff to 

igorizations were correct, or whether some or all of the expenses 

as independent expenditures. 

! cott Mackenzie, was also treasurer of the National Campaign Fund and The Legacy 

nittee. 
LRA 1030 Freedom's Defense Fund 

lAR Legal Comments 

Pago 3 of S 

i 

We concur with thi? finding. The basis for the finding is 11 C.F.R. § 104.14(b)(1). This 

regulatory provision requires reporting committees to "[mjaintain records, including bank records, 

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

and accounts, which shall i^vide in sufficient detail the necessary information and data from 

which the filed reports and {statements may be verified, explained, clarified, and checked for 

accuracy and completeness" (emphasis added). 11 C.F.R. § 104.14(b)(1). 

I 

Although the text of this regulation lists only certain types of financial documents, and 

does not specifically mentipn communication scripts, the authority of the regulation is not 

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

committee is required to m^ntain so narrowly. Rather, the committee is required to maintain 

records, "including" bank rjecords, which, in turn, "includ[e]" the kinds of financial documents 

listed in the text. 11 C.F.R! § 104.14(b)(1). When a statutory or regulatory definition of terms 

"includes" certain items, thi: otherwise applicable canon of construction, expressio unius est 

exclusio alterius, generallyjdoes not apply. See 2A Norman J. Singer, Sutherland&at. Const., 

§ 47.25 (7* ed. 2014) ("Th6 word "include" in a statute generally signals that entities not 

specifically enumerated ard. not excluded."). See also. e.g., White v. National Football League, 

756 F.3d 585,595 (8* Cir. im),Jones v. American Postal Workers Union, 192 F.3d 417,426 (4"^ 

Cir. 1999). llius, the mere inention of certain kinds of documents in section 104.14(b)(1) does not 

exclude other kinds of documents from its scope. 

The Commission has not interpreted this provision so narrowly as to exclude other kinds of 

documents. For example, in an advisory opinion that addressed the extent to which the 

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

payments to a member of ajcandidate's family, the Commission indicated that the committee 

would be required to maintain a copy of the committee's employment contract with the family 

member and other documerration relating to the family member's employment under the authority 

of section 104.14(b). Advitory Opinion 2001-10 (Jackson). In another advisory opinion that 

construed the personal use provisions, here in the context of the use of a car for campaign and for 

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

updated with each use of thp car would satisfy the recordkeeping requirements of 11 C.F.R. § 

104.14(b) if maintained as jjart of the committee's accounting records. Advisory Opinion 2001-03 

(Meeks). The Commissionihas also indicated that payroll deduction authorization forms.are 

tunong the repords that woujld satisfy the recordkeeping requirement of section 104.14(b)(1). See, 

e.g.. Advisory Opinion 199^-03 (Microsoft PAC); MUR 4955 (Metropolitan Life Insurance 

Company Employees' Political Participation Fund A), Factual and Legal Analysis (Dec. 22, 

1999).^ Finally, in a matterj involving enforcement of the requirement to file 24-Hour reports of 

U 

^ In a subsequent unanimous Statement of Reasons, the Commission concluded that it would no longer 

consider copies of the original si^ed payroll deduction authorization form to be the sole adequate means of satisfying 

section 104.14(b)(1). See Statenfent of Reasons of Chairman Michael E. Toner, Vice Chairman Robert D. Lenhard, 

and Commissioners David M. Mi son. Steven T Walther, Ellen L. Weintraub, and Hans A. Von Spakovsky In the 

9;e«'A'yfC,MURS721,AuditRefeiTal0S-10. RAD Referral 06L-01 (Jun. 13. 

' does not, however, indicate that the payroll deduction authorization form is not 

documents required to be maintained under section 104.14(b)( I). See Statement of 

Policy!,] Recordkeeping Requirements for Payroll Deduction Authorizations, 71 Fed. Reg. 38SI3 (Jul. 7,2006). 

(signed payroll deduction authori: ation forms not the only adequate proof for meeting § 104.14(bX 1), but maintaining 

Matter of Lockheed Martin Empl 

2006). This revision of the polic; 

appropriately included among the 
LRA 1030 Freedom's Defense Fund 

lAR Legal Comments 

Page 4 of 5 

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

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

under section 104.14(b)(1). See MUR 5850 (Republican National Committee), Factual and Legal 

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

Although employment contracts, mileage logs, payroll deduction authorization forms, and 

the various documents memorializing independent expenditure dissemination dates are not 

specifically listed in section 104.14(bXl). Ae Commission required the requesting committees to 

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

for enabling the Commission to verify the legal correctness of the committees' reports of their 

permissible campaign receipts and expenses in the context of an audit or other inspection. The 

same logic supports requiring committees engaged in making independent expenditures to 

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

verify, and to differentiate between, the committee's independent expenditures and its operating 

expenditures. 

If the Commission interpreted the regulation narrowly to exclude all types of potentially 

verifying documents not enumerated in section 104.14(b)(1), then the capacity of the Conunission 

to verify the accuracy and completeness of a committee's reporting would be severely restricted 

because not all information contained in reports may be verified by recourse to the types of records 

enumerated in section 104.14(b)( 1). For example, the Federal Election Campaign Act of 1971, as 

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

disbursements. See 52 U.S.C. § 30104(b)(4), (5). 11 C.F.R. §§ 104.3(b)(3); 104.9. The 

Commission has. provided examples of acceptable purpose descriptions as "diimer expenses, 

media, salary, [and] polling." See, e.g., 11 C.F.R. § 104.3(b)(3)(i)(B). The kinds of bank records 

enumerated in section 104.14, however, would not necessarily include the type of information that 

is required to verify that the Committee used the disbursements for "dinner expenses, media, 

salary, [and] polling." Id. 

In this case, while the Conimittee reported the media expenses as operating expenditures, 

the Audit staff needs to ascertain the nature of the disbursements in order to determine whether any 

of these should have been reported as independent expenditures. Because in most cases the text of 

the communication associate with the disbursement constitutes the only evidence of the nature of 

the disbursement,^ and the Commission's regulations require the Committee to maintain ai^. 

provide "the necessary information... from which [its] filed reports and statements may be 

them is a sound recordkeeping practice and in many cases they may serve as best documentation of deduction 

authorization). 

* Indeed, in previous comments we provided to the Audit Division on several interim audit reports ("lARs"), 

we stated that using invoices alone to infer that disbursements on media expenses were made for independent 

expenditures would be legally inappropriate in the absence of the text of the associated communication. See 

Comments of OGC on lAR on the Colorado Republican Committee (LRA 961), received by Audit Division on Dec. 

11,20IS; Comments of OGC on lAR on the Conservative Campaign Committee (LRA 996), dated Nov. 25,2015; 

Comments of OGC on IAR on TeaPartyExpress.Org (LRA 995), dated Dec. 1,2015; and Comments of OGC on lAR 

on the Illinois Republican Party (LRA 1006), dated Dec. 22,2015. 
LRA 1030 Freedom's [defense Fund 

lAR Legal Comments 

Pi^ S of5 

verified, explained, clarified, and checked for accuracy and completeness," it is essential that the 

Audit staff have access to this information and that committees maintain it.