NATIONAL CAMPAIGN FUND 

30011 IVY GLENN DRIVE, SUITE 223 

LAGUNA NIGUEL, CA 92677 

(949)495-3314 

February 27,2012 

Alex Boniewicz 

Audit Division - Federal Election Commission 

999 E Street NW 

Washington»DC 20463 

Re: Response to the National Campaign Fund Interim Audit Report dated January 24,2012 

INTRODUCTION 

Thank you for the opportunity to comment on the Federal Election Commission's staff audit of the 

National Campaign Fund (NCF). At the outset we wish to state that the staff of the FEC we worked 

with on this audit were highly professional and especially thorough. We believe we were completely 

transparent with the staff and hope that our cooperation assisted in obtaining a desirable result. 

We would like to offer a few words at the outset about NCF. The facts of the audit show that NCF 

is a non-connected PAC that is not supported by any sponsoring organization such as a labor imion or a 

corporation. There is no permanent staff, ofGce, or office equipment. NCF was formed in 2008 with a 

fairly simple intention: to raise fiinds over a moderate period of time to allow it to participate in the 

General Election of 2008 by making direct contributions to candidates for Federal office. As such, 

NCF is the epitome of a "grass-roots" attempt to participate in the 2008 Federal elections. 

NCF never intended to engage in any independent expenditures. The problem, however, is that the 

FEC believes, through its staffs interpretation of the rules, that NCF engaged in widespread 

independent expenditure activity. It really did not - the communications were all just fundraising 

letters sent to proven donors with no consideration at all to whether the recipient was even a voter. Yet 

the staff inteipretation of "independent expenditure" was extended to NCF*s fundraising letters, so 

special reporting rules "kicked in" that create a monstrous reporting requirement on the conunittee's 

fiindraising letters, which, once again, is not supported by permanent staff or a large organization. 

Further, because of public disclosures, the FEC staffs interpretation of the applicability of the 

independent expenditure rules to direct mail fundraising misleads the public, and media reporters, to 

erroneously conclude, that NCF engaged in widespread "independent expenditure" activity when the 

nature of tiie activity had no regard to whether the recipient was a voter, where they lived, whether 

there was an election date approaching, and so on. NCF believes that if the FEC truly considers all the 

facts, it should agree, that NCF's fundraising letters are not independent expenditures and that it 

therefore had no requirement to file the 42 so-called "late reportsl' it apparently was tardy in filing. 

NCF produced a variety of different direct-mail fundraising appeals during the 2008 cycle, through 

direct-mail and electronic mail, using the tried-and-true method of: test, and roll-out. In this regard, 
NCF's direct-mail advisors obtained lists of proven donors to Republican and conservative causes for 

the committee, and we tested various different content appeals in the letters to these donors, and when 

there was response data shoving success (contributions) to support a "roll-out" of the test to the whole 

list of potential donors, we did so. 

The various tests and roll-outs 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, but the purpose of the mailings themselves, and the facts surrounding the mailing, was not to 

intervene in any election by engaging in a true independent expenditure (i.e., an election 

conmitmication intended to influence a vote in an election for or against a candidate). The facts 

demonstrate that the timing of all of NCF's mailings had absolutely no reference to the timing of 

primary elections during 2008; the content of the letters, other than sometimes including some words 

considered "express advocacy" by the FEC, did not urge the recipient audience to vote for any 

particular candidate. Instead, the focus of all the direct-mail was on making a contribution; the 

audience or list of recipient's mailed to was selected for its fundraising value, and with absolutely no 

consideration for its electoral value. For example, absolutely no emphasis was given and no inquiry 

made as to where the mailings would be sent (as in whether or not they were targeted to an electoral 

geography or a primary election state), or whether the recipients were even registered voters. 

Eventually, after several months of testing and rolling-out many mailings, NCF obtained an "excess 

of revenue" over the cost of the mailings, and on achieving this ^pping point" of excess of revenue, 

funds began to be used to make a number of direct contributions to candidates. As the audit 

demonstrates, the professionals only received compensation when "excess of revenue" was achieved, 

and even then such compensation was reasonable and did not exceed the total of contributions to 

candidates. Today, NCF has no funds and no support, and the professionals involved in responding to 

this audit have volunteered all their time to comply with the FEC's requests in completing the audit. 

NCF disagrees that any of its direct-mail fimdraising mailings constitute "independent 

expenditures." The Commission defines an "independent expenditure at II CFR 100.16 as a 

"communication" "expressly advocating" the election or defeat of a clearly identified candidate. 

While NCF's mailings mentioned elected officials and candidates, and did include words of express 

advocacy in some of the mailings, taken as a whole, NCF's mailings cannot be interpreted to be 

"communications" intended to expressly advocate. The facts of the audit demonstrate that the letters 

were clearly not intended to intervene in an election in their own right because they were created and 

sent without regard to an election; they did not include any real markers of a political election 

"^persuasion" communication, and could not have any meaningful effect on an election, standing on 

their own, because the timing of the mailings had no bearing on any election and the recipient lists 

selected were not voter files. Thus, the expenditures' content, timing and distribution, and audience 

indeed served a fundraising purpose, but not an electoral purpose. The direct-mail "audience's" 

understanding was to be motivated to give a contribution to NCF; and not to vote for a particular 

candidate. As such, the letters are not independent expenditure "communications" because in no way 

did they advocate the election or defeat of a clearly defined candidate. 

The FEC should not discourage "grass-roots" participation in Federal elections. Encouraging more 

public participation rather than less is seen as beneficial by all serious observers of the electoral 

process. Yet the FEC's complicated rules as evidenced in this case make it practically impossible for a 

grass-roots type movement, im-connected to established union or corporate monied interests, to rise up 

and be involved in the process. The FEC has implemented rules and its staff seems to have developed 

interpretative rules that greatly penalize essentially voluntary efforts to make a non-connected PAC 

meaningful, by burying the activity in expensive - and at the end of the day meaningless - reporting 
requirements, which have the effect of misleading the public as to the nature of the activity engaged in. 

We respectfully request that in this case, the FEC interpret all of NCF's direct-mailing for what they 

are: fundraising letters, not independent expenditures. This will be a fair result and the right decision. 

RESPONSE TO SUMMARY OF FINDINGS AND RECOMMENDATIONS 

1) Misstatement of Financial Activity 

We are amending the necessary reports to correct the misstatements. 

Please note that we made every effort to record all transactions and that we believe the 

discrepancies occurred because of the cumbersome processing/reporting of activity by our 

outside vendors who processed the vast majority of our contributions and disbursements 

activity, and the timin^availability of the details/reports which we received from them. Also, 

please note that the report (on page 5) states: "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". 

2) Disclosure of Independent Expenditures - Reporting "Memo** Entries 

Virtually all of our expenditures were spent on direct mail fundraising. For any one mail piece, 

there were several vendors involved (mail preparation, printing, list rentals, postage, etc.). 

Therefore there were also several invoices that related to any one mail piece. Each invoice had 

to be approved by the committee, then sent to the primary vendor for 

organization/dissemination. Subsequently, the mail piece was disseminated. Timeframes 

varied significantly between approval of the invoices, ultimate dissemination of the related mail 

pieces, and availability of the dissemination dates to the committee for recording the 

expenditures in the conmiittee's records. In many instances, one invoice could also relate to 

more than one mailing. Therefore, it was virtually impossible to identify specific invoices with 

the actual dissemination dates of the related mail pieces. As such, the committee made the 

decision that it would be most prudent under the circumstances to record all expenditures when 

they were actually made, because it was virtually impossible to identify unpaid invoices with 

the dates the related mail pieces were disseminated. 

3) Disclosure of Independent Expenditures 

Foremost, in our opinion, as stated in the introduction, is that none of the expenditure issues 

raised in the report "influenced the outcome of the election" because in no way did they 

advocate for the election or defeat of a clearly identified candidate. We have responded several 

times to other FEC requests re: independent expenditures - the substance of our responses (and 

this response as well) is that we believe that our direct mail fundraising letters should be 

excluded from the definition of independent expenditures, and that the intent of the regulation 

was not to include direct mail fundraising expenditures as "independent expenditures". Please 

note that on page 3 of your report, it states: "...$1,261,206 of these expenditures appeared to 

meet the definition of independent expenditure...". To us, that suggests that the definition is 

subject to interpretation even within the FEC. 
Following are some of our related comments that were included in previous responses: 

• 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 expenditures for your extraordinary reporting purposes. 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, or 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 we believe the public is indeed mislead by the artificial inflation in 

dollars spent on what we are required to report as lEs. 

• It was never our intention to do independent expenditures. Even though some of the letters 

contained "words of express advocacy", the mailings were sent only for the purpose of 

raising money so that we could make contributions to candidates in the general election. 

This is evidenced by the timing and distribution of the mailings, which then could not be 

reasonably interpreted as independent expenditures. We did not consider them to be 

"independent expenditures," because their purpose was entirely for direct-mail fundraising 

to proven commercial conservative fundraising lists chosen for their fundraising potential 

and not for their voting impact. 

• The NCF expenses incurred for independent expenditures consist of mailings to a broaid 

list of potential contributors covering the entire United States in a repetitive '*test" and 

"roll-out" program devised by our vendor Response Dynamics. Tliese mailings are 

fundraising letters for the general election that happen to include content that is express 

advocacy. Their only purpose is "general" fundraising for the general election. 

• In our view, characterization of these mailings as "independent expenditures" has the 

effect of greatly overstating and inflating the actual funds used by the organization to 

influence the election by express advocacy. The facts in this matter demonstrate that we 

initially characterized all the letters as "fundraising," and only changed the designation for 

reporting purposes after the FEC staff contacted us and insisted that appeals that included 

words of express advocacy MUST be reported as independent expenditures. We herein 

proffer that parsing the content of the many different letters was not a practical solution for 

our small operation. We therefore made a decision to report ALL the letters as 

"independent expenditures" to placate the FEC staff. However, an unsuspected and 

dangerous result of that decision, (which we felt forced into by the FEC staff) was that it 

pushed the PAC into a reporting requirement it simply could not keep up with. 

In a discussion during the cycle with the Ne:w York Times reporter Michael Lou, he offered 

the opinion to us to the effect that the FEC's reporting requirement on NCF of these 

entirely fundraising letters as "independent expenditures" had the effect of misleading the 

public into thinking that this type of committee is making significant "fulfillment" 

expenditures when in fact all of the funds in the mailing program are simply being used for 

fundraising. We agree with that assessment. 

Reporter Thomas Edsall of the Huffington Post, asked us why the committee had reported, 

on the reports you are questioning, significant independent expenditures per the FEC forms 
but that he had not seen equal independent expenditure fulfillment. We explained to Edsall 

that the answer to his question was that your requirements had the effect of distorting the 

actual level of independent expenditure activity by lumping strictly direct-mail fundraising 

into that category where it contains words of express advocacy. Edsall seemed to agree 

with that assessment in a telephone discussion with James Lacy. Edsell then wrote about 

NCF and another PAC in a story published August 11, 2008 which states in relevant part, 

in support of NCF's representations in this audit: 

" As of the most recent filing with the Federal Election Commission last Jime, the 

two PACS had a combined total of $56,906.50 left in the bank, along with debts of 

$15,060, for a net of $41,846.50." 

"Lacy, the treasurer of both committees, contended that there has been little spending 

on actual electioneering activities for a number of reasons. First and foremost, he said, 

"Neither of these two committees has gotten to the so called 'tipping point' where it 

actually has a profit. They haven't got to that point yet." 

"In addition, he said, "The entire effort of these two groups is focused on the general 

election in November, not ear/2er....(emphasis added). Even if revenue was ten times 

what it is ~ or more - right now, these groups would not be spending any serious funds 

on advertising, as we are good managers and correctly conclude it would be a complete 

waste of the donors contributions to do so." 

'Finally, according to Lacy, "The economy is in recession and as other parts of the 

economy have been affected, so has political giving through direct-mail. Because of the 

typically smaller margins on direct-mail fundraising, unless response rates and dollar 

amounts are high, the program can lose money. The economy has depressed both 

response rates and dollar amounts of contributions, at least from what we were hoping 

for." 

"We have to raise a lot of dollars. Voters need a concrete message that is hammered and 

hammered again and again," Lacy said. Because of their weak fundraising this cycle, 

"We can't put together a viable budget," he said, adding almost wistfully, "If a theme 

catches, then we can roll with that." 

MITIGATING FACTORS 

Finally, we wish to inform you that The NCF has made the decision that the time requirements, 

coordination, and record keeping are sadly not worth the effort of continuing to participate. We 

continue to believe that the FEC should reform its excessive reporting requirements for grass-roots 

organizations that engage in direct-mail fundraising - we stress that these letters are simply not 

independent expenditures. Nevertheless, we wish to inform you that we plan to terminate the 

committee after the audit is completed. 

In further mitigation, NCF took steps to quickly and accurately submit amended reports to correct 

the misstatements of financial activity and also to provide the auditors with current bank statements 

intended to verify that our records and those of the bank are reconciled. As we stated above, every 

effort was made to accurately record all transactions at the outset, and the discrepancies were a result 

of the cumbersome processing and reporting of activity by outside vendors. As soon as the 
discrepancies were pointed out to us, NCF took the time to make sure all reports were amended in a 

timely manner. We feel that our timely response to FEC inquiries and our complete cooperation with 

the FEC throughout this process, as well as our stated aim to close The NCF Conunittee, should be 

considered mitigating factors in considering any civil penalty assessed against NCF. The FEC has in 

the past acknowledged full cooperation and expeditious compliance with FEC requests to amend 

records as "a mitigating factor in determining an appropriate civil penalty" (Advisory Opinion 1995-

19). We conducted the activity of the committee under the impression of our compliance with the FEC, 

and when we were notified of misstatements of financial activity, we cooperated with the FEC's 

investigation. Our aim was to participate fairly in the political process, not to mislead the FEC in any 

manner. We ask that our subsequent cooperation with the FEC and efforts to ensure accurate reporting 

of financial activity in the future are considered when assessing the penalty for violating the Act. 

Sincerely, 

n Barrett Garcia 

Assistant Treasurer 

National Campaign Fund