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 

(tiie Act). The 

Commission generally 

conducts such audits 

when a committee ..-ft'S''• 

appears not to haye met 

the threshold 

requirements for 

substantial compliance^ (.v 

with the Act:';T|te|audit ^'i 

deteririliles whetH6r.tiie.^ 

committee complied witK 

the lirhitiations, '^-p 

ptohibitl^laiid 

disclosure requirements 

of the Act. '%^^,^ 

Future Action 

The Commission may '^^ 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

About the Committee (p. 2) 

Freedom's Defense Fund^Js a non-connected and multi-candidate 

committee headquartered ifi Washington, DC. For more 

information, see thie^'^chart dh'Cpmmittee Organization, p. 2. 

FinanciaipActivity (p. 2) 

• Receipts ''^^^ 

^s^vO Contributionsfrgm 

"^^^I^^QfEsets to CJfs^ihg 

'v:^r\'%^enditures '^i-'^: 

Total Recjeipts 

Disbursem^inli 

.'.•^•'•i. '•\v ^ \ 

O 

Ojerating'Ekpehdi " ' 

Coiibibiitioiis to Pefeal 

Canclid[ate Committees and 

Other Pplitical Committees 

ijl^ndependeiit Expenditures 

keifuiid of Contributions 

Oth^r Disbursements 

:^Xotal Disbursements 

'l^t Finding and Recommendation (p. 

Disclosure of Independent Expenditures 

$2,215,319 

7,056 

$ 2,222,375 

$ 2,079,920 

62,894 

62,499 

2,600 

24,000 

$2,231,913 

3) 

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 

•'ST. V "'WV:"-S.f£>r5?.. 

.•f,.-4> • 

J.' •< ^ "VV,..* . 

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Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee %v 

Committee Organization ^ 

Overviewof Financial Activity ^^Sj l U- ^ 

Part III. Summary 

Finding and Recommendation 

Part IV. Finding and Recomniilidation^^^ 

Disclosure of Independent Expenditures 5?^,>c:-( :> 

• V *i . • MS*- "ft 1^vV'>'" 

• : 'v. 
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 comrnittee that is required to file a 

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

Commission must perform an intemal review of repQrt^-filed by selected committees to 

determine if the reports filed by a particular commitiiigie' iTieett^^^ threshold requirements 

for substantial compliance with the Act. 2 U.S.e;..§438(b).' • < ^ 

Scope of Audit ^^c- "' 

Following Commission approved procedure${^the Audit staff evaluate4..:various risk 

factors and, as a result, this audit examined: '^^ii^ ,.t$^ ^^ir--

1. The consistency between reportj^d figures arfd bankft^bYds; ' v 

2. The disclosure of individual Qoni^^^ occup^tjibil/name of employer; and, 

3. The disclosure of disbursemenfe^''^rl:5:£>,, ^"^J^,. 

••V.'S: '*••. 

••f;•*f»v^^^^i':•v••^r=^/'^i::. '•••^'^' 
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 

Headquarters /Washington, DC 

.f."'-'. • -i^ 

Bank Information -^^' 

• Bank Depositories s/^'^" three. 

• Bank Accounts Four Checking Accounts 

•<S:ii.'-. 

Treasurer ''^3 V'. 

• Treasurer When Audit Was Conducted ..Scott B. Macke.hzie 

• Treasurer During Period Covered by .Audit ^' 1 .^Scbtt B. Mackenzife 

Management Information H' ^' 

• Attended FEC Campaign Finance Seminar, ^^'^^-r i vv •iVes 

• Used Commonly Available Campaign Mafiagemeifit,§&j|>yar 

Package , -^^{.^ ^V;Hy>^ 

• Who Handled Accouiitirig and RecprdkeepingSasks .Paid Staff 

Ov^rviei^, of Fiiiitn 

Cash on hiahd (® Janu{iry^l^i< 2007^ = 

Lcial Activity 

||ints) 

$ 22,538 

ReceiptsV " '^Pir 

o Contributions from Individi^ls -C;; ~. $2,215,319 

o Offsets to Operating Expenditures '^''J.^ 7,056 

Total Receipts \ - $ 2,222,375 

Disbursements 

o Operating Expenditures •i ^ .v.;'' $ 2.079,920 

o Contributions to Federal C'a^didate 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 that FDF disclosed as operating 

expenditures. In response to the Interim Audit Report re^mmendation, FDF provided 

additional information that established $62,499 in indej^jejnaent expenditures. FDF 

amended its reports to disclose all but $11,869 as inidbpendeht expenditures. Appropriate 

24/48-hour notices were not filed for independent expenditures totaling as much as 

$43,498. '^^^r-

(For more detail, see p. 4) .:'•: • •. -

• <.::xyv y: .-fcxs "..-^ »• 
Part IV 

Finding and Recommendation 

Disclosure of Independent Expenditures 

Summary 

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

which appeared to be independent expenditures that FDF4i||lpsed as operating 

expenditures. In response to the Interim Audit Report reQ^friiriendation, FDF provided 

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

amended its reports to disclose all but $11,869 as independent expenditures. Appropriate 

24/48-hour notices were not filed for independent^xpenditures totaling as much as 

$43,498. .:^,xy ' 

Legal Standard >, 

A. Independent Expenditures. An independent expenditure is an expenditure made for 

a communication expressly advocating the electi6h^^r:40leat of a clearly identified 

candidate that is not made in codpei|a|ion concert with, or at the request 

or suggestion of, a candidate, a caiididafd^s^a.uthorized cbmmittee, or their agents, or a 

political party or its agents. ^^^f;2l> . 

A clearly identified ^ffididat^^ris one wlit>s.%nampni<clma^ pHbtograph or drawing 

appears, or whosie;^.id|ntity is^^arent througji^ynambiguSu^'f^ such as "your 

Congressman," orihjrbugh an un^biguous%|ference to his or her status as a candidate, 

such as "the Democratic^residentiaLnominee'v pr "Republican candidate for Senate in 

this stoii;-;UwK. ^?l|s5S'^^-^-^.?:if,.. 'i^, 

Expressly advocating^jmeans any Qommunicatioh that: 

• v.y phrases suVH^as "voteifpr the President" or "re-elect your Congressman" or 

cdmmunications of QampaighVSlQgan(s) or individual word(s), which in context 

can have no other reasonable meaning than to urge election or defeat of one or 

more clearly identified candidates; or 

• When takish-as a whojefand with limited references to extemal events, such as 

proximity to tH||.elecjtion could be interpreted by a reasonable person only as 

advocating the Election 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 expendituri|3^at.any time during the calendar 

year—up to and including the 20th day before an electidh'V^iiiust disclose this activity 

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

that the expenditures aggregate $10,000 or mpreV In addition, independent expenditures 

that aggregate $1,000 or more during the lastBO days—up to 24 houris-r-before an 

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

§434(d) and (g); 11 CFR §104.4(b). : •; 

D. Requirements for MaintaimrfgiRecords. Reporting committees are required to 

maintain records that provide, in Mffibi'ehtldetail, the irifbrmation from which the filed 

reports may be verified. 11 CFR §r(;^U4(bM|ey., ^^ r!^. 

Facts and Analy^^^^J.. '^Iv ^^'^ipi^B^^ '"^^^ 

. " •• ^•tit '''^...'^J;. W^/.. Air'..'''ir "^^^..... . 

:.v- 't?.ijf-' "'^^^-^ 

A. Facts ^^^^ i0 

During audit fieldwSt||the Aujdli.steff review^d^^^ disbursements to identify any 

independentexpenditui^^h^ti^lijak projjeily reported. FDF disbursed $97,896 for 

media biiys^ report^ $l§;00:|;is Indepeiftd0.nt ^ on Schedule E and in 24/48-

hour notices, and $7jS.,^895 as 'oip^rating exp^ditUres. A review and analysis of these 

experiditures revealed'theYfollowiii^:*^. 

1. Media B uys - Independent Expand itures 

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

Pennsylvania ffSm=p9/25?pb08 to 11/03/2008, at a cost of $60,397. Ofthis amount, 

FDF reported $l$=i0^.l^'a^'independent expenditures and the remaining $41,396 as 

operating expenditurefs. 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 the 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^ ' 

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

totaling $34,028. These ads ran from Octob^pr^^ugh November 3, 2008. 

Notices filed for reported independent expenditures of ^$49,001 disclosed a 

communication date of October 29,20Qi^:^i:ihdicating that.;these notices are related 

to ads for which dissemination datestv/efie made available^However, the Audit 

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

hour notices with dates and amounts dn^the supporting documentation. The Audit 

staffs review of the available informatiori indicated that FDF failed to properly 

disclose independent expenditures and file 24r^li6ur notices for Murtha ad costs 

totaling $15,027 ($34,028'|$t9|)Ql). ^^•:'^^. 

Murtha Ads without Dissemination Dates - * i.;;. 

Disseminati|jS|nfQj^ation was^n|t provide|%r>the reiinajhing $26,369 ($60,397-

$34,028)ff^SieiiiliM Audi|steffi^y2SiiaitiSri\6fttiie 24/48-hour notice 

requiremeii^i^AAppropriatip 24/48-ni^tices appear to b^e required and were not filed. 

FDF should iiaye, disclo!sed these costlf'r^s independent expenditures rather than 

operating experiditures^J^^^ 

.2: yUndocumerited:Media'E[u}(S - Appsl^^iit'Jndependent Expenditures 

The;Audit staff noted^ths^t mediailexpenditures reported as operating expenditures, 

totaling $:3.7,499 ($97,§f 6,- $60,3l>7), lacked documentation and could not be 

associated^yith a specificf^d or dissemination date. 

B. Interim Audi^Repoipf/i&|Audit Division Recommendation 

The Audit staff addrdsil^jd^Mese expenditures at the exit conference and provided the FDF 

representative with a sche'clule detailing these expenditures. The FDF representative 

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

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

additional documentation, which were considered in the above analysis. 

^ "[I]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 take the following 

action: 

• Provide any other documentary evidence that would demonstrate that these 

disbursements were not independent expenditures; or 

• Provide documentation that details 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 contain express 

advocacy, details dissemination dates; 

• Submit and implement revised procedures for reporting independent expenditures 

and for tracking dissemination dates for such,expetiditures to allow for timely 

filing of 24/48-hour reporting notices, as reiqiiirbd; and. 

• Amend its reports to correct the reporting|of ihdependeritexpenditures, as noted 

above. 

C. Committee Response to the Interim Audit Report 

With respect to the $37,499 in expenditures lacking docuin^ntation to deterrnine the 

nature of the expense, FDF provided informatiori'^s'^^^^ some of these costs with the 

Murtha ad ($2,102) and demonstratmig^that the others.; ($35,397) were not independent 

expenditures. ' ^. ' 

FDF submitted written^prpQedures for-i^porting^^dependenf and for 

tracking disseminati6^|S'^t0ii^@ir such ex^enditu^gi to^ filing of 24/48-

hour notices, andTridibated ii^Mitent to impie.m0nt% procedures immediately. 

FDF amended its repbrts)to disbrose-independeiit expenditures totaling $50,630. 

D. .^raft Final\A^!dit ReiP|9rt "^Iff ^^ ^-^ 

Based'.bn the additi6nalv|nform^^l!idn submitiedih FDF's response, the Audit staff concurs 

that bf .the previously uhiij^cumeriti^^^^ in media expenditures, only $2,102 relates 

to the Kiiiitha ad and the reit^pf the olskyrsements were not independent expenditures. 

Given the information now-available, independent expenditures related to the Murtha ad 

totaled $62,49>^-f$60,397 + $^102). FDF amended its reports to disclose independent 

expenditures of $C0j^3O, wHicH included the $19,001 that had been previously disclosed, 

as noted above. FDFi^dijiiinbtr^ independent expenditures totaling $11,869, as 

recommended. Audirl&W'advised FDF's representative of the difference but has 

received no further explariation 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 totaling $43,498 ($62,499 less $19,001 in notices filed, as noted above). 

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

$28,471.