DRAFT FINAL AUDIT REPORT RESPONSE 

Freedom's Defense Fund 

JUNE 26, 2017 

scone. MACKENZIE 

Treasurer' 
Finding!. Misrtatenient ol Financial Activity 

Audit Ffaiding 

The audit team reviewed 

entries reported to the FE(! 

the financial activity of Conservative Majority Fund, and compared the 

with the bank records; and their findings were as follows: 

2011 Committee > ictivity 

Reported Bank Records Discrepancy 

Beginning Cash Bali nee @1/01/2011 $43,781 $46,043 ($2,262) 

Receipts $1,324,490 $1,312,365 $12,125 

Disbursements $1,293,431 $1,345,788 ($52,357) 

Ending Cash Balanci ;@ 12/31/2012 $74,840 $12,620 $62,220 

The committee has amended its reports to correct the discrepancies. 

Page 11 
Findinga. Disclosure og Occupation and Name of Employer 

Audit Finding 

The audit team reviewed all contributions fix)m individuals requiring itemization and found that 

2,911 contributions totaling $378,639 lacked adequate disclosure of occupation and name of 

employer. 

All written solicitation requests by the committee included a Reply Form containing the 

donor's full name and mailing address. 

Each reply form states the following: Federal Law requires us to obtain ar^ report the 

name, mailing address, occupation and name of employer of individuals whose 

contributions aggregate in excess of $200 in a calendar year. 

Space is afforded on the Reply Form for the donor to provide the occupation and 

employer information. 

In the event the donor fails to offer the requested information, the committee, within 

thirty (30) days of receipt of the contribution, sends the donor a letter requesting the 

missing infomation. 

Once the donor information is obtained the committee amends its reports to display the 

required information. 

Although the committee did obtain over 9S% of the missing information, it had not amended its 

reports at the time the Interim Audit Report was issued. This has been rectified with the 

committee filing amended reports to include the missing information. 

Page I 2 
Findings. Reporting ot Apparent Independent Expenditiires 

Audit Finding 

The audit staff reviewed d 

reported accurately. Freed 

$385,619 and these disbu 

targeted voter contact (nor 

disclosed as operating ex| 

should have been reported 

sbursements to verily that the Independent Expenditures were 

I >m's Defense Fund (FDF) disclosed independent expenditures totaling 

ir iements were for broadcast media and production, as well as some 

n -solicitation) mail. The audit staff identified additional disbursements 

:p mditures (Schedule B, Line 21(b)) totaling $868,015 that they assert 

as independent expenditures (Schedule B, Line 24). 

Background 

Freedom's Defense Fund 

received and processed at 

money and make contribu^i 

candidates. During the 20( 

expenditures in addition tc 

greater pace each election 

iled its initial Statement of Organization on June 1,2004 and it was 

he FEC on June T"*. When FDF was founded, its purpose was to raise 

ions to conservative federal and to a lesser extent, non-federal 

8 election cycle, the committee began making independent 

making candidate contributions; and this practice has continued at a 

;ycle. 

The primary flindraising t( 

mail). Close to 100% of th 

program. 

ol utilized by FDF has been direct response solicitation mail (direct 

B money raised by FDF has been a result of its small donor direct mail 

Direct MaU 

Reaching potential donors through direct mail has a track record of success going back to the 

1964 Goldwater for Presit^nt campaign. At the start of any direct mail program, the organization 

must prospect for potential donors. This generally requires renting lists of like-minded 

conservative individuals w^o share the values and principles being promoted by FDF (love of 

nstitution; less govemment intrusion, etc.). The lists rented by FDF 

have made contributions to conservative candidates and/or 

country; respect for our C( 

are lists of individuals wh( 

organizations within a certain time frame (generally 6-24 months). 

Individuals who respond h i 

"house" file. Whereas the 

the 1 to 2 percent range, a 

FDF's "prospect" mailings are combined into the committee's 

esponse percentage of a successful prospect mailing is generally in 

louse file mailing can generate a response rate of 10% or more. 

Targeting donors for prosp Bct mailings can be viewed as macro-targeting, while house file 

mailings might be describe d as micro-targeting. And as house file mailings focus on a smaller 

universe, with generally hi ;her average contributions, they can be expected to generate large 

amounts of net contributio is for use by the organization. 

As previously stated, direct mail has been the primary source of FDF's funding since its 

inception. 

Page I 3 
IMreetMUlt Solidtatioiisv.VoterPemiarion 

FDF has utilized two (2) 

prevalent is soiicitation mi 

funds for the organization 

mail); whose purpose is to 

candidate. 

t; pes of mail over the past several election cycles. The first and most 

I ilings (commonly referred to simply as "direct mail"); utilized to raise 

The second is voter persuasion mail (often referred to as voter contact 

convince the recipient to vote for, or against a clearly identified . 

The committee has always 

expenditures on Schedule 

classified as solicitation ex 

to convince the recipient t<» 

these disbursements are reported 

Direct Mail Pyramid 

Regardless the type of di 

mailings, but in this instan 

reported its direct mail (solicitation mailings) expenses as operating 

3, Line 21 (b) as the purpose of these disbursements are justly 

penses. Conversely, voter contact mail (persuasion mailings) attempts 

vote in a certain way and does not request a contribution; therefore, 

on Schedule B, Line 24 as independent expenditures. 

irect mail being discussed, there is an inevitable pyramid that affects all 

X, we will center the discussion on direct mail solicitations. 

Page I 4 

Right to the Trash 

Opened & 

Skimmed 

Read 1st 

Paragraph 

Read 

\ Letter 
As the direct mail pyramic 

mail piece, throw it away 

package designer to develi 

"hook" might be the desim 

envelope; or simply a retu 

celebrity. 

lop 

Once the direct mail pad 

purpose of pushing the reddei 

spurring that individual to 

As stated, FDF sends its d 

demonstrates, a large segment of the population receiving a direct 

vithout even opening it. Consequently, it is the responsibility of the 

a "hook" that will entice the recipient to open the package. That 

of the carrier envelop; a phrase or quote printed on the carrier 

Ti address fix)m a prominent signor who might be an elected official or 

;kage is opened, emotionally charged passages are highlighted with the 

:r to the end of the letter and eliciting a reaction that will result in 

vard contributing. 

rect mail to like-minded individuals who have previously contributed 

to FDF or another conservative group or committee. The purpose of these mailings is NOT to 

influence their vote - we 1 now with nearly 100% certainty how they will vote - our goal is to 

solicit a contribution to FDF. 

Moving an individual to 

Therefore, it is imperative 

language that touches a 

an FDF direct mail piece 

to the reader, not trying to 

raw 

The term "independent ex 

act, particularly when that effects their checkbook, is not easy, 

to tell a heart-felt story or create an emotionally charged letter with 

nerve in the reader (sometimes referred to as "red meat"). So, when 

says: "Barack Obama must be defeated" we are supplying "red meat" 

persuade them to vote our way - that's a given. 

Definition of Independent Expenditure 

oenditure " means an expenditure by a person for a communication 

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

§loo^(1>)Cs) EvprcMly advocatiiig 

Reasonable minds could r ot differ as to whether it encourages actions to elect or defeat one or 

more clearly identified ccihdidate(s) or encourages some other kind of action, [emphasis added] 

The FDF direct mail proi 

one or more clearly identi 

contributing to FDF. 

gram was NOT designed to encourage the recipient to elect or defeat 

fed candidate(s) - it was to encourage some other kind of action -

Further, the FEC PAC Gu 

The committee 

Nowhere in the PAC Qui 

via the mail are to be repc 

ide on page 11 states: 

mc^ solicit contributions through...mass mailings... 

ide. the Regulations or the Act does it state that fiindraising solicitations 

rted as independent expenditures. 

Page I 5 
Package DiBerences 

The look and feel of a dire :t 

The primary components ( 

• Carrier Env 

• Solicitation 

• Reply Font 

• Return Env 

Another aspect of a direct 

following: 

elope; 

Letter; 

;and' 

ilope. 

nail piece is the repeated plea for donations using language like the 

...And that 

•worthy of^ 

$5,000 at thi. 

s wfy a group like Freedom's Defense Fund is so important and so 

immediate support of $35. $50, $100, $250, $500, $1,000 or even 

is time. 

your 

Only then n 

candidates 

... with so m uch on the line 1 really need you to take urgent action by. Thursday, 

March 31"... 

Sometimes PDF offers the 

If you rush 

it is released. 

iack $45 or more ...I will send you a copy of my new book as soon as 

Again, the stated purpose 

committee so that help can 

"urgent action" is requeste 

A voter contact mailing by 

graphics to quickly inform 

American, while candidate 

pyramid because there is n 

designed piece may have 

Page I 6 

mail piece versus a voter contact mailing are drastically different, 

f a direct mail piece are: 

ill we be able to provide the help these front-line conservative 

leed to run winning campaigns. 

donor an incentive: 

of an PDF direct mail piece is to generate contributions to the 

be provided to "front-line conservative candidates". And when 

1 - that action refers to sending a contribution to PDF. 

contrast is generally an oversized postcard with pictures and/or 

the recipient that candidate "A" is a wholesome, red-blooded 

"X" is a "red". The oversized postcard by-passes the direct mail 

ithing to open, and even if the piece goes directly to the trash, a wellthe intended impact during the few seconds it is in the receiver's hand. 
FEC Audit of the 2008 Eleetlon Cycle 

The 2008 Election Cycle activities of Freedom's Defense Fund were audited by the Federal 

Election Commission. The audit staff and the committee disagreed on the amount of the 

disbursements that should have been reported as independent expenditures. However, all those 

expenditures had to do with media ad buys and NOT with FDF's direct mail program. 

If the audit staff determined that the committee's direct mail program was properly reported on 

Schedule B, Line 21(b) for the 2008 election cycle; how is it that the audit staff can claim that for 

the 2012 cycle, FDF should have reported $868,015 related to its direct mail program on 

Schedule B, Line 24 as independent expenditures? 

FDF makes every attempt to comply with the Act and Regulations, but in this instance, it appears 

that the audit staff is applying a different standard. Should the Commission decide that 

committees like FDF should ignore the purpose of an expenditure, and focus only on language, 

regardless of the action being encourag^ - FDF will certainly conform. However, to 

retroactively apply a different standard should not be the Commission's policy. 

The committee has reported disbursements of its direct mail program on Schedule B, Line 21(b) 

and strongly suggests that these expenditures have been properly reported as solicitation 

expenses. Further, FDF is relying on the FEC Audit of its 2008 Electioil Cycle activities that 

verified the proper reporting of those disbursements. 

The committee recognized prior to the current audit that the FEC was taking a different approach 

to communications via the mail than it had during the 2008 and prior election cycles. Therefore, 

in the subsequent 2014 election cycle, expenditures that previously would have been reported as 

Line 21(b) Operating Expenditures were allocated as Line 24 Independent Expenditures. 

The committee believes that it properly reported its direct mail expenditures on Line 21(b) 

throughout the 2012 election cycle. Given the thorough review by the Audit Staff and their 

reclassification of over $850,000 from Line 21(b) to Line 24 Independent Expenditures - can we 

agree that this is not a failure by the committee to report Independent Expenditures, but rather a 

disagreement in allocations? 

The committee has filed amendments to coincide with the conclusions of the auditors without 

accepting the premise that it failed to properly report those Independent Expenditures. 

Page I 7 
Hndingij. Recordkeeping tor Conununications 

Audit Finding 

The audit staff identified th 

with purposes of "direct m 

documentation provided v> 

reported as an operating ei 

expenditure. 

irteen (13) expenditures totaling $90,814 on Schedule B, Line 21(b) 

ail - creative" and "direct mail - postage" and determined that the 

as insufficient to determine whether the expense was properly 

.pense or whether it should have been reported as an independent 

The committee has com itacted 

documentation. As the ovi 

asserts that its direct mail 

independent expenditures, 

conclusions without accei 

the vendors in question without obtaining the desired 

erriding issue of this finding is similar to Finding #3; the committee, 

I ixpenses were properly reported as operating expenditures and not 

However, amendments have been filed to coincide with the auditor's 

pting fault. 

Page I 8 
In Summary 

The audit staff has identif 

Finding 1. Misstatement o 

ed four (4) areas of concern and PDF has addressed each of these. 

Financial Activity 

The committee has 

Finding 2. Disclosure ofC 

nam 

The initial disciosi 

$378,639 of itemi 

occupation and 

received the missir 

information. The o 

information. 

Finding 3. Reporting of A 

PDF reported the c 

amended its reports to reflect the changes identified by the audit staff. 

mre 

ized 

ccupation and Employer 

reports filed by PDF identified 2,911 itemized contributions totaling 

contributions, that lacked full disclosure of the contributor's 

le of employer. The committee utilized "best efforts" procedures and 

g data on more than 95% of those previously missing the required 

)mmittee has amended its FEC Reports to reflect the added 

loarent Independent Expenditures 

This is where the committee and the audit staff have our greatest area of disagreement. 

isbursements related to its direct mail solicitation program as 

operating expenditures on Schedule B, Line 21 (b) and the audit staff has concluded that 

$868,015 of these 

The committee poi 

have been properly 

the changes identif 

( isbursements should have been reported as independent expenditures, 

nts to its 2008 Election Cycle Audit as evidence that these expenses 

reported. However, the committee has amended its reports to reflect 

led by the audit staff. 

Finding 4. Recordkeeping !for Communications 

The committee was unable to gather the documentation requested by the audit staff. The 

committee has amended its reports to reflect the changes identified by the audit staff. 

Finally, due to a serious m 

time of the Interim Audit I: 

Request for Commission 

idical condition of the Treasurer, the amended reports promised at the 

Response are just now being filed. 

Hearing; 

Per the Commission's ruling that a committee being audited may request a hearing prior to the 

Commission's adoption of 

Freedom's Defense Fund request such a hearing. The topic I wish to discuss is Audit Finding #3: 

Reporting of Apparent Ind 

Page I 9 

the Final Audit Report; I, Scott B. Mackenzie as the Treasurer of 

spendent Expenditures.