Interim 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 Act.' The audit 

determines whether the 

committee 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 Committee 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 

$ 1,186,972 

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). 

^ On December 15,2010, the National Campaign Fund changed its name to Expose Obama. 
Interim Audit Report of the 

Audit Division on the 

National Campaign Fund 

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

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part 11. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summaries 

Findings and Recommendations 3 

Part IV. Findings and Recommendations 

Finding 1. Misstatement of Financial Activity 4 

Finding 2. Failure to File Notices and Properly Disclose Independent 

Expenditures S 
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 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 internal review of reports filed by selected committees to 

determine if the reports filed by a particular committee 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. 
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 Commission 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 1,186,972 

o Operating Expenditures 679,546 

o Refunds of Contributions 26,143 

oLoan 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 and disbursements by 

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

The Audit staff recommends that NCF amend its reports to correct the misstatement. 

(For more detail, see p. 4) 

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 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 reportable debt on Schedule D (Debts and Obligations). 

If NCF believes that these expenditures ($1,261,206) did not require reporting as 

independent expenditures, the Audit staff recommends that it provide evidence to support 

that conclusion. Absent that. Audit staff recommended that NCF submit and implement 

revised procedures for reporting independent expenditures. (For more detail, see p. 5) 
Part IV 

Findings and Recommendations 

I 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. 

The Audit staff recommends that NCF amend its reports to correct the misstatement. 

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, if known. 

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 because of a discrepancy between the 

reported ending cash on one report and beginning cash on the succeeding report (a $100 understatement). 
The understatement of receipts resulted fi:om 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 (695) 

• 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 fi-om 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. They agreed to amend their 

reports as necessary. 

The Audit staff recommends that, within 30 calendar days of service of this report, 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 fi'om a prior period audit adjustment. 

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

identify any subsequent discrepancies that may affect the adjustment 

reconmiended by the Audit staff. 

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 reportable debt on Schedule D (Debts and Obligations). 

If NCF believes that these expenditures ($1,261,206) did not require reporting as 

independent expenditures, the Audit staff recommends that it provide evidence to support 

that conclusion. Absent that. Audit staff recommended that NCF submit and implement 

revised procedures for reporting independent expenditures. 

Legal Standard 

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

means an expenditure by a person for a communication 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 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 

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 

During audit fieldwork, it was 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, Line 24. During the 

remainder of 2008, NCF filed reports which 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 $33,486. 

• 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 our reconmiendation. 

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

expenditures. The email stated, ^'Political jundraising 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 fi'om 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 financial backing. 
permanent staff, and infi-astructure 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 firom 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 communications resulted 

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

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

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

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

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 communication multiple 

times for each mailing but did not keep previous versions of the communication, and 

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

considered in the analysis of independent expenditures presented above. 

The Audit staff recommends that, within 30 calendar days of service of this report, 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.