Draft Final Audit Report of the 

Audit Division on the 

National Campaign Fund 

February 4, 2008 - 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 

appears not to have met •' 

the threshold ^ 

requirements for ^ 

substantial compliance 

with the ActJ«Ag^udit 

determim 

comn^lpe complied^ 

the 

prohibiti^ 

disclosure 

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^ 

The National Campaign 

headquartered in Laguna 

information, see the ch£ 

'connected committee, 

alifomia. For more 

fee Organization, p. 2. 

LCtivit 

individuals 

Financia 

• Receipts 

o Contributioii' Iri 

j£ans Received 

o ^i^fe^geceipts 

Tot^RbitsL 

Disburl 

o Indeplhdent Exp^ditures 

o Operatmg Expenditures 

0 Refund^^Contributions 

" * T ^'.'i-Repayments 

1 ulal -USbursements 

$ 1,927,095 

5,000 

3,489 

$ 1,935,584 

$ 1,186,972 

679,546 

26,143 

5,000 

$ 1,897,661 

•' - * Findings and Recommendations (p. 3) 

• Misstatement of Financial Activity (Finding 1) 

• Failure to File Notices and Properly Disclose Independent 

Expenditures (Finding 2) 

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

Audit Division on the 

National Campaign Fund 

February 4, 2008 - December 31, 2008 

V 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Part II. Overview of Committee 

Committee Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Part IV. Findings and Recommendations^ 

Finding 1. Misstatement of Financial Activity 

Finding 2. Failure to File Noticesmnd Properly DiscUi^^ndependent 

Expenditures 

Page 
Part I 

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 committee^it is required to file a 

report under 2 U.S.C. §434. Prior to conducting any audit und^Kis^ubsection, the 

Commission must perform an internal review of reports file^^^elected committees to 

determine if the reports filed by a particular committee m^Ttn^^shold requirements 

for substantial compliance with the Act. 2 U.S.C. §418(1 

Scope of Audit 

Following Commission-approved procedures 

factors and, as a result, this audit examined: 

1. the consistency between reported figures and b 

2. the disclosure of individual contractors' occupatio' 

3. the disclosure of independent exp^|^res: and 

4. other committee operations necessa^^^^eyiew. 

evaluated 

rds; 

'.iirj of employer; 
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 N^^l> CaHfomia 

Bank Information 

• Bank Depositories Thg^X ••• • ^ 

• Bank Accounts jj^ee*^hecking \>\-^ats 

Treasurer 

• Treasurer When Audit Was Conducted "^Mjj^TOey ^ 

• Treasurer During Period Covered by^udit Jarl^ll^. Lacy 

Management Information . > 

Seminar 

• Who Handled Account^gi u 1 ocordkeepi^ 

Tasks 

Paidmff 

Ovell^iew of FinJScial Activity 

(Audite^punounts) 

Cash-on-^fa^d ^ Febni:ir\ 4. ZO^F" . ^ $ 0 

Receiptl^ ••. ^ ' .-' 

o Contribul inii:^tom Individ-isij^i ^ 1.927,095 

o Loans ReceivUBk^^ B 5.000 

o Other Receipts ^"^S^N M 3,489 

Total Receipts ^" v^S^ $ 1,935,584 

Disbursements ^ 

o Independent Expenditures 1,186.972 

o Operating Expenditures 679,546 

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. 
Part III 

Summaries 

Findings and Recommendations 

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^d disbursements by 

$69,339 and $100,887, respectively, and overstated ending cas^^k^ d by $31,448. In 

response to the Interim Audit Report recommendation, NCl^j^^nded its reports to 

materially correct the misstatements. (For more detail, s( 

Finding rope^^|Disclose 2. Failure to File Noticei 

Independent Expenditures 

During audit fieldwork, the Audit staff ascertff^^^at NC^yisclosed ini:«:|v|lllent 

expenditures, totaling $1,548,622, on Schedule E i^^ki^p^ependent E?e^nditures). 

The Audit staff noted that only $1,261,206 of these e!|^mitures appeared to meet the 

definition of independent expenditur^^dcontained lan^l^^ expressly advocating the 

election or defeat of a clearly identifie^^^^^te. Of thes^^|gjg^ndent expenditures 

NCF: 

did not file 24/48 B,74Sn^^c\y manner and did not file 

any 48-hour n 

did not prdperl^^clos^^dependent e'^efiditures totaling $528,662 made (i.e., 

publicly dissem»^^^j^^^^ta|^men^ "memo" entries on Schedule E and as 

a de^^! Si: I icil iileBgi I )«-=)tsl^ffll^a 

In re|^mse to the Intel 

suppoi^^^ position thi 

not requir^^^ing as in( 

recommenda^^^at they 

independent exp^^ures^ 

kudit'^^^E^reconmiendation, NCF provided information 

{e pui^ ^ of its direct-mail letters was fundraising and did 

|endent expenditures. Regarding the Audit staffs 

)mit and implement revised procedures for reporting 

TCF indicated that they plan to terminate after the audit is 

completed. (For ni^^||l!ail. see p. 5) 
Part IV 

Findings and Recommendations 

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^^n d by $31,448. In 

response to the Interim Audit Report recommendation, NCF |^^[de^ts reports to 

materially correct the misstatements. 

Legal Standard 

Contents of Reports. Each report must disclose 

• the amount of cash-on-hand at the beginni 

• the total amount of receipts for the report; 

• the total amount of disbursements for the repo: 

and 

• certain transactions that require it^ii/jiion on Sche 

Schedule B (Itemized DisbursemeiH>)". C-U.^ C. §434(6; 

end ^the reportinf^^od^ 

d anolfor the calends 

d ^ d for the c^endar year; 

(Itemized Receipts) or 

,(3), (4) and (5). 

Facts and Analysis 

A. Facts 

During audit field; 

records for calendar y§\ 

receipts, dis^j^^g^gnts, 

why the 

d reported financial activity with bank 

mt outlines the discrepancies for the 

ance. The succeeding paragraphs explain 

iniix letivity • , 

^ 1 Reported Bank Records Discrepancy 

Opening Ca^^[anc ^ 

@ February 4,^^^ ^ 

$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 fi'om the following: 

• Disbursements not reported ^ $ 96,398 

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

• Contribution refunds not reported 7,433 

• Amounts incorrectly reported ^ ^ . (696) 

• American Express charges not reported 522 

• Unexplained difference j^^ ^ - •V 0741 

Net Understatement of Disbursements ' ^ vlOO.887 

The $31,448 overstatement of the ending cash-on I: 

described above. 

ii.siilii^fi'om the 

B. Interim Audit Report & Audit Di\iNi( 

At the exit conference, the Audit staff emaim 

schedules to NCF's Treasurer and Assistam Trc 

reports as necessary. 

icommend! 

lisstatei^^ts and provided 

I IK->' agreed to amend their 

The Interim Audi^iF^pst recoi 

• Amend its repos^o coj 

Amendaiit'Sjnost rec 

ejpimran^i^^^the 

further, NCP^Steld ha^ 

re? 

itify any subs 

Wnended by 

ended that 

e missta^ments noted above; and 

ri'eis^^^pcorrect the cash-on-hand balance with an 

e result^DTom a prior period audit adjustment. 

onciled the cash balance of its most recent report to 

lent dil^ipancies that may affect the adjustment 

iAudrrstaff. 

C. Committd^^sponse^ Interim Audit Report 

In response to tii^^^inpVudit Report recommendation, NCF filed amended reports for 

2008 that materially^^ected the misstatements. 

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 $33,485; 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 reconmiendation, N(.'l-'.provided information 

supporting its position that the purpose of its direct-mail 1^<^:'^4^ fiindraising and did 

not require reporting as independent expenditures. Reg^mng tnS^dit staffs 

recommendation that they submit and implement rej^dpocedure^^reporting 

independent expenditures, NCF indicated that th@s^lan to terminate ^^^£he audit is 

completed. 

Legal Standard 

A. Definition of Independent Exp^ditures. The te^^ndependent expenditure" 

means an expenditure by a persoi^^^^ommunicatil^^^ressly advocating the 

election or defeat of a clearly ident^^^^|didate that is^^^^de in coordination 

with any candidate or authorized co^niul^^^gent of a ^mdidate. 11 CFR 

§100.16. \ ^ \ f 

B. Disclosure RequJ 

be reported o: 

the same payee du: 

expenditumsJDade 

as 

exn^lHitures of 

l^^i^ e total of til 

§§l<^to(3)(vii). 

infills- General G 

;n added 

elines. An independent expenditure shall 

|otiier independent expenditures made to 

calendar y^^ t exceeds $200. Independent 

Ited) prior to payment should be disclosed 

debt on Schedule D. Independent 

to be itemized, though the committee must 

line (b) on Schedule E. 11 CFR 

C. Last-Mini^^^epen^ht Expenditure Reports (24-Hour Notices). Any 

independent (S^^dil^s aggregating $1,000 or more, with respect to any given 

election, and ma^Ke r the 20^ day but more than 24 hours before the day of an 

election must be^eported and the report must be received by the Commission 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 

communication is publicly disseminated serves as the date that the committee 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 Commission 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, it was noted that NCF's initial filing for 2008 (the April 15* 

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

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

operating expenditures as independent expenditures on Sche^^E and Line 24 of the 

report. During the remainder of 2008, NCF filed reports ^^l^l!- . '.osed the majority of 

its disbursements as independent expenditures. 

NCF disclosed independent expenditures, totalin, 

these disbursements were for the printing and 

letters that were disclosed as either in suppo: 

President or in opposition to Hillary Clinton or 

staff reviewed these expenditures to ^ess whether N 

Schedule E and if 24/48-hour notices^^^equired to 

,622, on Sclud 

cost&for direct maf 

Giu^^y|i or John Mc 

only $1,261,206 of these expenditures 

expenditure and contained language exp: 

clearly identified candidate. A review of 

expenditures ($l,261,2Qjilf^\ .-.iijd the 

NCF did 

expenditures 

for'srvl.-lRr. 

reportei 

ents were 

manual. For expel 

nt expeni 

covenngpil^dates 

correspom 

Most of 

tion 

for 

malbr President The Audit 

pperly reported them on 

The review indicated that 

o meet the a^^non of an independent 

the Mction or defeat of a 

s and invoices for those 

manner 2 

'48. Iii.Klilitio 

our notices of its independent 

CF did not file any 48-hour notices 

^dcpch^^^penditures when the invoices were paid; some 

or niHhs after the dissemination date of the printed 

iture^taling $528,662, NCF should have disclosed 

res as memo entries on Schedule E, filed with reports 

len the materials were disseminated, and included a 

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 recommendation. 

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 fimdraising into IE status, it creates 

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

the financial 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 currentrequirements 

cause. In the last election, I fielded questions about the Na^n^^ampaign Fund 

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

IE expense compilations as indications of actual IE ac 

both that the FEC requirements mislead the publicjif 

expenditures, and both the reporters agreed wit 

ie true 

lirectmail. I told 

ire of the 

Subsequent to the exit conference, the Audit ade ad^tional 

documentation and explanations to clarify wl 

in independent expenditures. NCF was asked to cli 

were distributed and to provide the c^itent of hyperl 

communications. In addition, NCF ^Sfejaauested to exp 

communications did not appear to corr^p^^fythe mailing' 

at 

request^g^CF for 

communica^ns resulted 

some of the communications 

were contained in those 

by some of the 

NCF responded by 

stating that the communications in quest^ w^^^^aUings^nd provided the content 

for one of the e-mailings. NCF also expla^dmti^^^l^ the communication multiple 

times for each mailingb^^^^ot keep pre^^s versio^^f the communication, and 

therefore was unablj^^provi^^e previous^rsions. NCF's responses have been 

considered in the sfm^j-^ A in^endent expeq^^res presented above. 

The Interim .\udil Report idjI^Q^FC take the following action: 

vidence that would demonstrate that these 

isbursements^^^^not i^^|^ent expenditures and therefore did not require 

notice^nd 

\t revised procedures for reporting independent expenditures, 

tracki^ dissemination dates for such expenditures to allow for 

-hour reporting notices. 

C. Committee Response to Interim Audit Report 

In response to the Interim Audit Report recommendation, NCF offered background 

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) ^at 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 intention of raising fimds to allow it to participate in the 2008 General Election 

by making direct contributions to candidates for Federal office. NCF indicated that the 

committee 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 includmg 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 fund^^^^alue, with no 

consideration for its electoral value. Thus the expenditures'jffient, timing and 

distribution, and audience served a fundraising purpose bji^o^^^lectoral purpose. 

;rs^constituf 

les an independenf 

iting 

idependent 

mditure at 11 

NCF disagreed that any of its direct-mail fimdraisii 

expenditures. NCF noted that the Commission 

CFR § 100.16 as a communication expressly y^^ting tlfkelection or de^^g^ clearly 

identified candidate. NCF acknowledged that s^^W^its^^ings did inclipre words of 

express advocacy. However, NCF thought that if tH^^n^ission considered all of the 

facts, it should agree that NCF's fiin^^ing letters we^^^independent expenditures 

and that the special reporting rules apj^^Meto independ^^cpenditures (such as the 

24/48-hour notices or memo entries) sl^ffi^^^^ly. NCF^fetf that they believe that 

direct-mail fundraising letters should be^cluS^^^mJhe d^mition of independent 

expenditures, and that the intent of the reg^ti^^^^^^l^nclude direct mail 

fundraising expenditu^^^^^endent ex]^aitures. j^ F urged the Commission to 

reform its reporting^^irem^^kbr grass-r^^s organizations that engage in direct-mail 

fundraising since ^^^^ieve tffi these letter^tpetfiot independent expenditures. NCF 

indicated that a decisio^^Lbe^teadethat th^mne requirements, coordination and 

record lee^iBi^H^uing to participate and as such, plan to kee 

termmatj 

t woi 

:idit is completed. 

The^'X'it 

acknowlel 

advocacy 1 

definition of 

fundraising letters 

evidence provided di 

independent expend 

ute th^^CF's intention was to raise funds. However, NCF 

staffCgrees, that some of these letters included express 

ote for John McCain". Since these expenditures meet the 

expenditure and the regulation does not exclude direct-mail 

definition, the Audit staff believes that the documentary 

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

tures.