FEDERAL ELECTION COMMISSION 

WASIiKmHnC2D«3 

MiVl2,2017 

MEMORANDUM 

TO: Pidricu C. Orrock 

Chief Compllanoe Ofiioer 

Oioinas E. Hmtennisler 

Assistant Staff Ducctor 

Audit DivisioD 

FROM: LisaJ.Stevemon JfS 

Acting Genera] Counsel 

Lorenzo Hollowly 

Assistant Genera! Counsel 

Compliance Advice 

JoshuaDlume JJ IbrJB 

Attorney 

SUBJECT: I>aft Final Audit Report on the Conservative Majority Fund (LRA 9S6) 

L INTRODUCnON 

The OfiBoe of the General Counsel has reviewed the Draft Final Audit Report ("DFAR") 

on the Conservative Majority Fund C*the Committee^. The DFAR contains five findings: 

Misstatement of Financial Activity finding 1); Disclosure ofOccupation and Name of 

Employer (Finding 2); Failure to File Reports and IVopeiiy Disclose Independent Expenditures 

(Finding 3^ Reporting of Debts and Obligtfions (Finding 4); and Recordkeeping finCommunications (Finding 5). Our comments address Findings 3 and 4. We have no comments 

regarding the ottier findings. Ifyou have any questions, please contact Joshua Blume, the 

attorney assigned to this audit 
CuiiiiuaHi 00 the Dnft Final Audit Report 

Ctmm wHl we Mijority Fund (LRA 9t6) 

P^2 

n. FAILURE TO FILE REPORTS AND PROPERLY DISCLOSE INDEPENDENT 

EXPENDITURES (FlMUng 3) 

The Ihterim Audit Report C*IAR*7 concluded that the Committee fiuled to report 

$469,136 in disburBements as independent expenditures. The Committee responded to the lAR 

and submitted a detailed itemization of ha costs according to several categories of medifr^elated 

expenses identified in die invoices h received fiom ihfiicisioii, inc. ~ its principal media vendor. 

The Commhlee disagreed whh the Audh Division's characterization of its mediHelated 

expenses as independent expenditures in several respects. Following an analysis of the 

Committee's rcsponae to the lAR, the Audh Division subtracted $64^160 fiom hs orighud total, 

and now concludes that the Committee fidled to report $404,976 fai independent expenditures. 

The Audh Division did not otherwise modify hs previous coiKlusions in the lAR.' 

FtPtdraising Ctmmtaticattons as /mfipnidbitf Eq/endUyres 

The Committee contends it considered the cost of the communications at issue, reggidless 

of whether the communications contained express advocacy, to be aiiocable between 

independent expenditures and fundiaising expenses or wholly a fundiaising expense on the basis 

that a ccnununication fliat was intended to solich contributions should not be categorized wholly 

as an independent expenditure. 

Ihe Audh Division coiKludca, in conbast, that if a communication contains express 

advocacy, h must be deemed an independent expenditure regaidiess of the purposes that the 

Committee intended the communication to fiiifill. We agree with the Audit Division. The 

fhctors causing a communication to qualify as express advocacy in the Commission's regulation 

defining that term do not include an MMntnarinM of the speaker's sutjective intent or purpose. 

See 11 C.FJL { 100.22; see also Express Advocacy; Independent Expenditures; Corporate and 

Labor Organization Expenditures, 60 Fed. Reg. 35291,35295 (Jul. 6,1995) ("Hlhe sulgective 

intent ofthe speaker is not a relevant consideration''under section 100.22). The Commission has 

arrived at this conclusion in previous audhs. Ae Final Audit Report on National Campaign 

Fund, at 9,12-13 (approved Oct 22,2012); Final Audh Report on LpgKy Commhtee Political 

Action Conunhtee ^Legacy PACr)i>tS, 10 (approved Jul. 31,2012). Wenotedinconunents 

on the audh ofthe Legacy PAC that the communicator's subjective intent isnot aftctorthe 

Commission considen when determining whether a communication contahu express advocacy. 

Ew Memorandum fiom Christopher Hughey to Patricia Carmona, Draft Final Audh Report on 

the Legacy Commhlee Political Actkm Commhtee (LRA 815) at 3-4 (Jan. 24^2012). Thus,to 

the extent that a communication that is the sul^lect (tfa disbursement contains express advocacy, 

all ofthe costs associated vnth producing and disseminating or distributing that communication 

miiar he ennaiA—iH inAywnAwt nf MIMAWP ^ lypiy 

motivated partly or wholly by a furiidraising purpose. 

' SflmaetegBrieaofmwMmMiwrfnn HMPiflwithi iha Cin«iliga'» wye in iha lAO, meh — 

knoi," htiBii," lod "dunk yoD Grill," wpor to laiM • qoHdon H to whBliNrllie Andil Diviika 

uuiGUtiy poiiaMGirilof^Coniinmw'iOQiiiiiiBnlcahMiitlmvwcuiodlDfliWIItliMGfhnctioiu. Howcvw,tliB 

CoBunlttM bai lepmeniKllhat the Audh Dtvtakn doGi oncBiiy poMMi ill ofibe GomiiioalGriiaBi dirt the 

CamnhtoeinGd. The Audit DhririGntlHnfbiolaNd its IndGpeDdGBlctcpGDdhinaialyrii uponddsnpnMalriiGa. 
Cceimenli eu the Dmft Find Audit Report 

Comeiwiiw Majority Fund (LRA9S6) 

POgeS 

CalegotlestffMk^Eqmnaes ThaiSioMNot Be DeemedInd^tendentEjpeti^imts 

We have identified two categories of cxpendftuics that should not be classified as 

independent expenditures. First, the expenditures that the Ccxnmitteeincuned to process 

contributions should not be classified as independent expenditures. The Audit Division 

cbuaified certain categories of media expenses associated with the Committee's receipt and 

processing of contributions as hidependent aqtendhures because the contributioiis thtf were 

leemved were made in response to Committee communications conlning express advocacy. 

For example; the Audit Division deemed costs incurred by the Committee to accept and process 

credit card mfbrmation received fiom contiibutafs» collectively denominated "Credit Card 

Processing" costs in the Committee's reqxxise to the lAR, to be independent expenditures 

because the contributions were purportedly submhted in response to a communication that 

contained express advocapy. Tte same rationale infbnns the Audit Division's classification of 

"Flags and Mailing Costs" and the subcategories of "Lock Box Services." "PO Box Rental 

Fees," and *t>edit Card Fulfiiiment Charges'^ wHhbi the brooder category of "Direct Mail 

Related Costa." 

We believe, however, that these eosts are difierent fiom the oosts directly associated with 

the production and distribution of the communications corrtaining express advocacy that 

prompted the submission of contributions. An independent expenditure is an expenditure made 

qrecifically o commipilcariwi expressly advocating the election or defeat of a clearly 

identified candidate." 52 U.SX:. { 30101(17^ 11 C.F.R. { 100.16(a) (emphasis added). The 

expenditures made by the Committee to process credit card eontiibutians or to reserve a lock box 

or a post oflSce box to receive coittributions are not expenditures made tor oommimications per 

je. We recormnendftherefinc; that the Audit Division revise the DFAR to deduct the coats 

associated with "Credit Card ftoeessing," "Flags and Mailing Costs,"' "Lock Box Services," and 

"PO Box Rental Fees" fiom the independent expenditure total.* 

' *t>BdltCwd Fulfillment Ctmge^ do nut ^sNVMiiiGh In the Cominaiee'siapOBM to the lAR. lUllNr 

this k one of feme componenti of the nbalegDiy **Mii6ellineaQi," mprettaia under the brood hmdhig of^iMmet 

Miil RslmBd Coiti" fai the leeponee. hlioarnndenttndlqgftan the Audit DtvUenilnt the endit end ftaHIUmcBt 

chmgee m euentUly a tbmi of cmdh end pneeming coi^ mid theretbn, their dmeitlGXloa ihould be the Bioie M 

thfi rndlt rinl pmrniilm rhwpi 

' We believe thiCthlililo even thomhtho lime In pBiiGulirvMnoIlM to potentUeonlribglonii 

pnmhuni during the Goine of dm enne eomnnHilcWian Genmlnfaig eipnm mlvoGMy tint sotlclled the 

coniiawlione. Even thoqrii the flege were ofbndMlneeatfvei to eantrawtOM pert of the cnpneeedvoGMy 

conummicrtiaa, we nadenlind the cert identUled hen to lelhr to the oort of leodliig the Ifaig to the coahlbular sfler 

theoQMrlbotiaoleieeeived. Tht 1!^ ••'"fT, rT*i?ti?ftmnniiliWliTni nufi mlj eihum illimilei 

election ordetfart of cleeriy Identified GBdldrtee. SM 11CFJLH 100.16; 10022. 

* FUiiher, while we es^wlih the dBedflcatloaorGCMtianooiBndwUi the cetegoiy of "Bumper Stichmi^ 

Si tndepeadent ospcndliiHei, tint ea>minenl li not pmmiied on the theory that die bumper rtkhen wen seat in 

leepooee to tho leceipl of ooBliibatiaoB faaphed by cxpnn ndvooney oommunicadooi; but lUiier an the cipnn 

edvocecy content of the hrnnperitlcbcBthnnielvef. The bumperfltdBBneaBliin the woidiHoinoey-Believe in 

Ameiici" ad "For 2012," words ilmiiir to the words lined u II C.F.R.d 10022(i)iinuaipinofeapren 

•dvoGiqr. 
Copunenli on die Dnft Ffml Audit Report 

Cotfiavrtiw M^fority Fund (LRA 9K) 

PipB# 

the costs associaled with the Committee's interactive voice response fIVR") 

piognun should not be classified as independent expenditures. The Committee describes this 

program as an automated telephone pioiml device that was used to screen callen and direct 

potential contributors to die live telephone openton conducting inbound telephone calls on 

bdialfofthe Committee. Acconlmg to the Committee; the IVR included a pre-recorded 

statement inibrming the caller that the Committee tried to reach them and that it was locating 

people opposed to then-President Obama's re-election. The caller was then given the options of 

being transferred to a live communicator, entering his or her telephone number into the "Do Not 

Call" list, or hanging up. it Is our undeiteandingthallfae Audit Dmrion classified the 

expenditures associaled with the IVR nogram as independent expenditures because at least 

some portion of the callers would have elected transfer to a live commurucator. who would have 

made express advocacy communications in ccqjunction whh a solicitation of fluids. 

The question ofwhelber the costs associaled with the creation and operation of the IVR 

IVogiam mi^ be characterized as independent expenditures is a closer one than the question of 

how to categorize the costs fiir credit card procening. discussed above. At least a portion of the 

callers are directed by means ofthe IVR Program to live telephone operators who conduct 

colloquies with the callefs that include express advocacy as part of the inbound telephone call 

program. However, a practical difliGulty exists. We understand that the Audit Division lacks 

sufficient infirnnatkm to enable it to allocate the costs of the IVR Program in accordance with 

the actual proportions of calters who exercise each of the options that the IVR nognm makes 

available. Given this practical difficulty, we recommend that the IVR Program disburseounts be 

dedugtaJ fiom the independent expenditure total in the finding. 

Categories of hfedkxExpme Thai Should be Moved to Finding 5-lUcon&eejringJbr 

CammrnAMlkm^ 

We recommend that Audit Division move two categories to the recordkeeping finding. 

The first of these is included within the subcategory of "Outside Services." which itself isasub-

* The AudhDiviikinliHilfoahBd whether one diibinenNntGumBliyloGrted hi FiiidhigS and OM 

dfahnment cnnenlly kcteed in Ffaidiiig 3 ihould rannhi in these flndhip. or ehonid oUieiwiie he coneidend 

earpawHihii— Tie M iliileiiiiimsili ewi' (I) TT? in fhr e ifhmleiiii wlwslliiiuiiil ninn l»l in liiriili <ii ei 

**RepeiiObaaiiBn*inFfndhigS;flid(nSlOOloopeDaneBGrowbnnkee60iHithiFfaiding3. Aetetheflnt 

disbunemen^ invoice deidriplionB eppeer to refiect iMth •! TlbeBindBic^ idvcrtiBeaient and e "Repeal 

ObmcrtcT ndvertiienienC. however the Audit Divisioo liM n copy of cn|y one idvertiaeDieat with dda themes 

entitled *t:ttiMa|ObeBaeiR-SD Video Sharing. The Andit Division oonchideB tint tUeidvertiseBiBBi does not 

trf—ffM wMi thk ecncliMlnB. Ws noonmiend thsi liiB Aodft Dlvisian aoospt fliB 

Owunhlee'B npiceentsiion in this metier Bd oonsider the $7^34 eqwnditure hi be an operrting opendltun. 

Snefa acdon wonid he consistent with the Audit DMsioa's aeeqitnee of the Gommittee'e lepRsentilioa that the 

Audit Division hash to poseessienaii ofthe connninilBetlnnB diet die Conunhteeueed. ItisileooonoeivablBtiiat 

the difltoeiilliivuioedeegfptionsieilect the ewneadvertiseBienlheoihr as both deeeribe the theme ofthe 

alwiilsiaiiiiil As to the seooaddiBbioienient. the $100 chaiieie reflected on the perthisntinvoioeflaly as 

UM Anitlt DhHdoi h— lniHnWnri tfa^ ft hM no hrnik nwpi'iy thm «•»—-gp 

BfC*^T^lHehtfHrf 1#*'* m tn thm iMiiire nrfrim lam wmnnKtwttmmA rfit HiU rfWiMw— 

twietocetedtoFfaidiivS. We note aleob however, thrttftheCommhtee does provide veiling documsntatkn the 

SlOO dhbonement would not be an independent enpeaditine mder the same ladonale that we have eat finth fat 

OQnaBGliQnwhhtfaecn£toeidpraoeBBtagcosts.ohQNe,OBdABRlbnwoeldfiotprapeibrbeTiaBodtoFtadiBg31a 

any event. 
Coiniiienli on the Dnft Ffnil Audit lUpoit 

Ccmen^ivB M^oihy Ptaid (LRA 916) 

PigeS 

classification of tiie "Otiier Vcndois" categoiy in the Commhlee's icsponsc to the lAR, and 

consists ofcommisslons paid to a film known as PoiiticaIM«lla Company. The second of these 

is a subcalegDiyof**Difcct Mail Related Costs" denominated "Sampie Premium ChaiBB-" These 

costs are not linked to any particular conrnmnications on any invoices. An Memorandum fiom 

Lisa J. Stevenson to Patricia C. Onock, lAR on the Colorado Republican Committee (LRA 961) 

(rec'd by Audit Division Dec. 11,2015); Memorandum fiom Lisa J. Stevenson to Patricia C. 

Onock, lAR on die Conservative Campaign Committee (LRA 99Q (Nov. 25,201S); 

Memorandum fiom Lisa J. Stevenson to PatriciBC.Ono^IAR on TeaPartyEapressX>rg (LRA 

995) (Dec. 1,2015); and Memorandum fiom Lisa J. Stevenson to Patricia Onock, lARon the 

Illinois Republican Party (LRA 100190^-22,2015). Given the absence of the underlying 

communications, we recommend that the Audit Division move these expenditures to the 

recordkeeping finding. 

UL REPORTING OF DEBTS AND OBUGATIONS (PMlag 4) 

In Its response to diis finding, the Committee argues that although Ha creditor submitted 

an invoice to the Committee oontainingchargestotaling $92^11, the actual responslbilHyfixpeying those amounts rested wHfa a separate, independent enthy organized under section 527 of 

the Internal Revenue Code known as the New Conservative Coalition ("NCC").' The 

Committee submHied a copy of the face of a check pr^able to Infiicisi^ Inc. executed by the 

NCC tor $93,990;^ which was Intended to satisfy the outstanding invoice enoneously directed to 

theCommhlee. The AudH Division observes in the DFAR that there is insufiicient evidence that 

fliis check was actually negotiated ami, therefiire^ concludes that there is insufficient evidence to 

indicate that these debts were not the responsibllify of the Commitiee. 

The Committee's attribution of these invoice charges to NCC rather than to itself 

suggests the possibilify that fiw (Committee nuy have been required to report this dcht as 

disputed debt pursuant to II CJPILi 116.10(a). Rreobo II CJJLS li6.l(d)C^ispuleddebtf 

defined in peiliuent panto include bona fide disagreement between creditor and dcbhu legaiding 

existence of obligation). A necessary condition ofa requirement to report disputed debt, 

however, is the receipt by the debtor conunHteeofsom^ing of value fiom the creditor. II 

CJ'JLS 116.10(a) Q^liticalGommhlee shall report disputed debt ifcredhor has provided 

something of value to Gonunhtee). SwoboMmier Unto Review ("MUR") 6654 (Friends of 

Weiner), Factual and Legal Analysis; at 4,6 (Feb. 5,2014) (to show a disputed debt, there must 

be infinmation thai indicates the credHor provided something of vahie to the commHtee). 

* Findiiig4i<BtleGliliieAadhDivbian*iGilaililiaatiHCiliBCaiiiiiilaKftlledtoiqMirtS67J00indelitto 

Intbdiloa. IheAudllDivhiaBlniaiptaiiMllDatlMtltderivsdtliisainoiiitbyHblnGlligtiiecMtoiDtbGliiaa 

Hut the Committee did gBpoit026(M30)floin the mm oftiiBiiiiouBliciiwgBdiahilboiihHiliwolcsi ($328^30). 

The Committee memtt, however, dmt $^11 of the lotti imaunt of iBAdiion faivoiGH of S32S,2S0 wen KtueiOy 

theieepoodbllhyofiheNCC. Thni, the Conunltteeeoiambtlml it only bore lespoaeMllartbriepoitliig $235,839 

(S328,^-$92d4n)k>debttolntbGision. IftheCommittee'slepneenimioniseccuniB^thiswooidsiiPiHythitthe 

CoBunlttee nporfed ill ofHi debt owed to fagKision and. In thct, over-reported thet debt 

' ThedifltoeneBofSl,579(S93J90-$92Ali)i'BtlBctsnniediaei[pBneethitthBCuuuuHiBeconcedeelt 

Incmed heelf, hot the! NCC sppeieully paid. Aoooiding to the DFAR, the Committee ttemedNCC'ipqnnem of 

'ttrffTTTir———*****^^***'*'''*—.TTtththniiiirinihininribii (tTT?) payaMf era 

lefimd. 
OomnNnli on die Draft Fiml Audh Rsport 

ConMnmhre Myoriy FiHd (LRA 986) 

PVft 

HCR^ the Audit Division hai inibniied US that the Mfvice chaiges reflectBd on fbe 

relevant invoices were for the sanw types of activities that Inibciskn unequivocally undertook 

on behalf of the Commitlee. Nevertheless, the Audit Division does not have sufficient 

infonnation to ddemine whether the servioeB reflected in the invoice were provided to NOC or 

to the Committee, hi the absence ofthatinfinnation, we are unahie to conclude at this time 

whether the Committee had an obligation to report the charges as disputed debt 

If the CommhtBe received the services, there is also the possibility that the Committee 

received an in-kind contribution. IfNCCincuned the charges^ the benefit of the Committee, 

or were fiir services that tlie Committee^ rsther tlian NCC, received, then NGC in so doiiig would 

have made an in^dnd contribution to the Committee. S2U.SI^.S3010l(8XAXi); II C.F.R. 

S IOO.S2(aX (d) (oonlrlbution Includes, in pertinent part,'teythlng of value" given for the 

purpose of influencing an election, and '^anyfoing of valued includes goods or services provided 

without charge or at less than the usual and normal charge). 

To determine if the invoice at issue reflects a disputed debt and to determine if the 

Committee received an bi-kind contributioi^ the Audit Division may wish to inquire whether the 

Commitlee received the services at issue in the invoice^ or the benefit of the services, rather than 

NCC. 

Finally, the Audit Divisian has suggested to us the possibility that the NCC and die 

Commitlee mqy hi foct be the same entity. The DFAR identifies certain connections between 

NCC and the Committee. The DFAR notes that the Committee's executive director was also the 

treasurer of NCC, and that Infbcision's alleged billing error transpired during the month of July 

2012, duriiigwhi^ the NCC was dissolving and the Conunittee was fbrming. TheAiidit 

Division has also noted that tiw invoices erroneously billed to the Committee, and which would 

have been properly directed to NCC, contain the same descriptions of services, the same costs, 

and used tte same catendar dates of service fiir billing purposes, as do the invoices properly 

billed to the CofimiitlBe. 

If the relationships between NCC and the Conunittoe were so extensive as to render them 

essentially the same entity, then the Committee might be deemed responsible for reporting debts 

IncurredbyNCC. The Commission has in the past considered the question ofwhether a party 

committee's control of an ostensibly acpaiate legal entity was so pervasive as to wsnam 

considering the party commitlee and the ostensibly separate entity to be in fiict a single entity. 

AeMUR 1503, General Counsel's Brief in the Matter ofJefibrson Marketing, Inc. and the 

National Corvenlonal Club, at 5-6 (Aug. 17,1984); MUR1503, Consent Order, at 3, par. V 

(Miqr 15,1986); MUR 4250, First General Counsel's Report, at 6-8' (May 8,1997).' While the 

' ThnflniiinilwInntlMiinf ippnrifrlhhnfllrn'iniiiiiiwiiiiiteinnfnMTIB 171flintlniHfMt1twnnniiit!l]r 

KpsnteaiiliMweninthGtxriqglecntilybytiiefeqiiiradfbwQlBi. Jra SlrtBBwa of ffininM of ConiiiMioBsr 

Seott E. Tfaonrai rod CommiHloiNr Dnqr Lee McDoDdd in MUR 42S0 (Jn. 28; 2000); SmoMia of RMNB of 

CommlHloiier Lee Ann Elliott In MUR 4230 (Mw. IIL2000). 

* Whh import to rapertiagvlotalioiii,theNMURs wen prinripdhreoiiGeniBdwIlfa the mklqg rod 

raeelvfaig of eonulbialoai rod the iWMiiied fUlm to npert eoBlilbulimi, ndier thro whh the fUhm to npoit 

debt MUR4250 eko roe eoneemed with foe prapereiioertion of nonfederal rod lUenlqirodlng. Neverfoekra, 
Coniinenli 00 die Dnft Final Audll Report 

Coennfltive M||oiHy Fund (UlA 916) 

F«gD7 

entities at issue in the MURa existed linuillaneouaty whereas llic NCC and the CommtttBC 

existed sequentially, we do not view this difihrence as detncting fiom the principle that 

reporting ^ligations ofone entity nuy be imputed to another entity where It can be 

demonstnted that the ostensibly separate entities in Act share a single identity. 

We note; however, that in the above MURs, the Commission pursued an extensive 

inquiiy into the relationships between the entities that employed considerations similar to those 

us^ hX the Commission to ascertain whether genuinely separate entities or their committees are 

affilial^. See 11 CJ'.R. $ 100.S(gX4)(6<»tirintngniultipk Acton to be employed in 

dctenniniiQ affiliation wherepcrje affiliation is not pre^). Given Ais, we do not believe that 

the Acts identified by the Audit Division above would suffice to establish that NCC and the 

Committee were not independeat entities. Ifthe Audit Division wishes to pursue Ab inquiiy, we 

would be available to advise it regarding the Actual questions tiiat would be necessary to ask the 

Committee. 

the prindple of avoUliig potentU Gfacunivnilan ornportiiig obUgrtiou gEnenlbr. would alio apply bsie If UGii a 

iiialliaiAip rtM in AI iiilii