Interim 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 

(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. 

About the Committee (p. 2) 

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

committee headquartered in Washington, DC. For more 

information, see the chart on Committee Organization, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from Individuals 

o Offsets to Operating 

Expenditures 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Contributions to Federal 

Candidate Committees and 

Other Political Committees 

Independent Expenditures 

Refund of Contributions 

Other Disbursements 

o 

o 

o 

Total Disbursements 

$2,215,319 

7,056 

$ 2,222375 

$2,123,418 

62,894 

19,001 

2,600 

24,000 

$ 2,231,913 

Finding and Recommendation (p. 3) 

• Disclosure of Independent Expenditures 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

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

Audit Division on 

Freedom's Defense Fund 

January 1, 2007 - December 31, 2008 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Part II. Overview of Committee 

Committee Organization 2 

Overview of Financial Activity 2 

Part III. Summary 

Finding and Recommendation 3 

Part IV. Finding and Recommendation 

Disclosure of Independent Expenditures 4 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Freedom's Defense Fund (PDF) 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 intemal 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; and, 

3. The disclosure of disbursements. 
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 

Bank Information 

• Bank Depositories Three 

• Bank Accounts Four Checking Accounts 

Treasurer 

• Treasurer When Audit Was Conducted Scott B. Mackenzie 

• Treasurer During Period Covered by Audit Scott B. Mackenzie 

Management Information 

• Attended FEC Campaign Finance Seminar Yes 

• Used Commonly Available Campaign Management Software 

Package 

Yes 

• Who Handled Accounting and Recordkeeping Tasks Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash on hand ® January 1,2007 $ 22,538 

Receipts 

o Contributions from Individuals $2,215,319 

o Offsets to Operating Expenditures 7,056 

Total Receipts $ 2,222,375 

Disbursements 

o Operating Expenditures $2,123,418 

o Contributions to Federal Candidate Committees and 

Other Political Committees 62,894 

o Independent Expenditures 19,001' 

o Refund of Contributions 2,600 

o Other Disbursements 24,000 

Total Disbursements $ 2,231,913 

Cash on hand @ December 31,2008 $ 13,000 

This amount, as well as the amount for operating expenditures, may change as a result of the fmding on page 4. 
Part III 

Summary 

Finding and Recommendation 

Disclosure of Independent Expenditures 

The Audit staff reviewed disbursements and noted expenditures for media totaling 

$78,895, which appeared to be independent expenditures that FDF disclosed as operating 

expenditures. Absent evidence to the contrary, the Audit staff recommends FDF amend 

its reports to disclose these disbursements as independent expenditures. 

(For more detail, see p. 4) 
Part IV 

Finding and Recommendation 

I Disclosure of Independent Expenditures I 

Summary 

The Audit staff reviewed disbursements and noted expenditures for media totaling 

$78,895, which appeared to be independent expenditures that FDF disclosed as operating 

expenditures. Absent evidence to the contrary, the Audit staff recommends FDF amend 

its reports to disclose these disbursements as independent expenditures. 

Legal standard 

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

a communication expressly advocating the election or defeat of a clearly identified 

candidate that is not made in cooperation, consultation, or concert with, or at the request 

or suggestion of, a candidate, a candidate's authorized committee, or their agents, or a 

political party or its agents. 

A clearly identified candidate is one whose name, nickname, photograph or drawing 

appears, or whose identity is apparent through unambiguous reference, such as "your 

Congressman," or through an unambiguous reference to his or her status as a candidate, 

such as "the Democratic presidential nominee" or "Republican candidate for Senate in 

this state." 

Expressly advocating means any communication that: 

• Uses phrases such as "vote for the President" or "re-elect your Congressman" or 

communications of campaign slogan(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 taken as a whole and with limited references to external events, such as 

proximity to the election, could only be interpreted by a reasonable person as 

containing advocacy of 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 which indicates 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 by that candidate (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)(5)(A) and 11 CFR §104.3(b)(3)(vii). 

C. 24/48-Hour Reporting Notices for Independent Expenditures. Political 

committees and other persons who make independent expenditures at any time during the 

calendar year—up to and including the 20th day before an election—^must disclose this 

activity within 48 hours of the date on which the public communication is disseminated 

each time that the expenditures aggregate $10,000 or more. In addition, independent 

expenditures that aggregate $1,000 or more during the last 20 days—up to 24 hours— 

before an election require disclosure within 24 hours following the date on which the 

public communication is disseminated. 2 U.S.C. §434(b), (d) and (g); 11 CFR § 104.4(b). 

D. Requirements for Maintaining Records. Reporting committees are required to 

maintain records which provide, in sufficient detail, the information from which the filed 

reports may be verified. 11 CFR §104.14(b)(1). 

Facts and Analysis 

The Audit staff reviewed FDF's disbursements to identify any independent expenditure 

that had been made and not properly reported. FDF disbursed $97,896 for media buys of 

which $19,001 was reported as Independent Expenditures on Schedule E and for which 

24/48-hour notices were filed. However, the remaining $78,895 was reported as 

operating expenditures. A review and analysis of these expenditures revealed the 

following: 

A. Media Buys - Independent Expenditures 

An ad was aired in Pennsylvania from 09/22/2008 to 11/03/2008, titled "What 

Murtha Says, Out of Touch"(Murtha ad) at a cost of $60,397. Ofthis amount, 

$19,001 was reported as independent expenditures and the remaining $41,396 was 

disclosed as operating expenditures. The ad clearly identified Rep. John Murtha and 

Barack Obama, and expressly advocated their defeat. The ad also clearly identified 

John McCain and Sarah Palin, and advocated their election. As a result, the Audit 

staff concluded that the "Murtha" ad was an independent expenditure that should 

have been reported as such and that the appropriate 24/48-hour notices should have 

been filed. 

The "Murtha" ad begins with a narrator's declaration that "Barack Obama and Jack 

Murtha have little respect for the people of Western Pennsylvania." It then contains 

audio clips of Barack Obama (Obama) and U.S. Representative John P. "Jack" 

Murtha ("Murtha") making negative statements about Westem Pennsylvanians. 

Murtha is heard saying: "There's no question that Westem Pennsylvania is a racist 

area," and Obama is heard saying that Pennsylvanians "get bitter and cling to guns 

and religion." Next, while the text on the screen says "MURTHA AND OBAMA 
DON'T REPRESENT OUR VALUES," 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 the Republican presidential ticket 

(John McCain and Sarah Palin) appears, and the text on the screen says "VOTE 

REPUBLICAN TUESDAY, NOVEMBER 4TH." ^ The ad concluded with an appropriate 

disclaimer for an independent expenditure. 

Murtha Ads with Dissemination Dates 

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

totaling $34,028. These ads ran from October 21 thru November 3,2008. 

Notices filed for reported independent expenditures of $19,001 disclosed a 

communication date of October 29,2008, suggesting these notices are related to 

ads for which dissemination dates were made available. However, the Audit staff 

was unable to associate the dissemination date and amounts on the 24/48-hour 

notices with dates and amounts on the supporting documentation. Therefore, our 

review of the available information indicated that FDF failed to properly disclose 

as independent expenditures and failed to file 24-hour notices for Murtha ad costs 

totaling $15,027 ($34,028 - $19,001). 

Murtha Ads without Dissemination Dates 

Dissemination information was not provided for the remaining $26,369 ($60,397-

$34,028), which limited our determination of 24/48-hour notice requirements. 

However, appropriate 24/48-notices appear to be required and were not filed. In 

addition, these costs should have been disclosed as independent expenditures 

rather than operating expenditures. 

B. Undocumented Media Buys - Apparent Independent Expenditures 

The Audit staff also noted that media expenditures reported as operating 

expenditures, totaling $37,499 ($97,896 - $60,397) lacked documentation and could 

not be associated with a specific ad or dissemination date. 

The Audit staff addressed these expenditures at the exit conference and provided the FDF 

representative with a schedule detailing these expenditures. The FDF representative 

stated he will 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 was considered in the analysis presented above. 

Interim Audit Report Recommendation 

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

take the following action: 

• Provide any other documentary evidence that would demonstrate that these 

disbursements were not independent expenditures; or 

^ "[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). 
Provide documentation which details dissemination dates for those media buys 

which lack such information; and, for those expenditures ($37,499) for which no 

documentation has been made available, provide documentation which 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, 

as well as for tracking dissemination dates for such expenditures to allow for 

timely filing of 24/48-hour reporting notices, as required; and 

Amend its reports to correct the reporting of independent expenditures, as noted 

above.