INTER M AUDIT RESPONSE 

Freedom's Defense Fund 

DECEMBER 27, 2016 

SCOTT B. MACKENZIE 

Treasurer 
Finding 1. ftOsrtatement of Financial Activity 

The audit team reviewed ti 

entries reported to the FEC 

e financial activity of Conservative Majority Fund, and compared the 

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

2011 Committee A ctivity 

Reported Bank Records Discrepancy 

Begiming Cash Bala ice @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 Balance @ 12/31/2012 $74,840 $12,620 $62,220 

The committee has agreed o amend its reports to correct the discrepancies. 

Page 11 
FindingZ. IHM losiire of Occupation and Name o£ Employer 

Audit Raiding 

The audit team reviewed al 

2,911 contributions totalinf 

employer. 

1 contributions from individuals requiring itemization and found that 

1 $378,639 lacked adequate disclosure of occupation and name of 

All written solicitat on requests by the committee included a Reply Form containing the 

donor's lull name a id mailing address. 

Each reply form sta es the following: Federal Law requires us to obtain and report the 

name, mailing addr iss. occupation and name of employer of individuals whose 

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

Space is afforded oi i the Reply Form for the. donor to provide the occupation and 

employer information. 

In the event the don or 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 informatior 

Once the donor infc 

required information. 

rmation is obtained the committee amends its reports to display the 

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

its reports at the time the Interim Audit Report was issued. This is currently being rectified as the 

committee is amending its reports to include the missing information. 

Page I 2 
Flnding3» Reporting ol Apparent Independent Expenditures 

Audit Fbiding 

The audit staff reviewed di^l 

reported accurately. Freed 

$385,619 and these disbur^emi 

targeted voter contact (non 

disclosed as operating ex| 

should have been reported 

ibursements to verify that the Independent Expenditures were 

's Defense Fund (FDF) disclosed independent expenditures totaling 

lents were for broadcast media and production, as well as some 

solicitation) mail. The audit staff identified additional disbursements 

litures (Schedule B, Line 21(b)) totaling $868,015 that they assert 

IS independent expenditures (Schedule B, Line 24). 

lom 

pendi 

Background 

Freedom's Defense Fund 

received and processed at t 

money and make contribut 

candidates. During the 200 

expenditures in addition to 

greater pace each election 

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

ie FEC on June 1^. When FDF was founded, its purpose was to raise 

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

i election cycle, the committee began making independent 

making candidate contributions; and this practice has continued at a 

(ycle. 

The primary fundraising to 

mail). Close to 100% of thi 

program. 

)1 utilized by FDF has been direct response solicitation mail (direct 

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

dent 

Direct Mail 

Reaching potential donors 

1964 Goldwater for Presi 

must prospect for potential 

conservative individuals w 

country; respect for our Co 

are lists of individuals who 

organizations within a certain 

hrough direct mail has a track record of success going back to the 

campaign. At the start of any direct mail program, the organization 

donors. This generally requires renting lists of like-minded 

10 share the values and principles being promoted by FDF (love of 

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

have made contributions to conservative candidates and/or 

time frame (generally 6-24 months). 

Individuals who respond to 

"house" file. Whereas the 

the 1 to 2 percent range, a 

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

response percentage of a successful prospect mailing is generally in 

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

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

mailings might be describe 1 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 contributions for use by the organization. 

As previously stated, direct 

inception. 

Page I 3 

mail has been the primary source of FDF's funding since its 
IMrect Mails Solidtatioiis ir. Voter Pemiadon 

FDF has utilized two (2) ty )es of mail over the past several election cycles. The first and most 

prevalent is solicitation ma lings (commonly referred to simply as "direct mail"); utilized to raise 

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

[»)nvince the recipient to vote for, or against a clearly identified 

funds for the organization, 

mail); whose purpose is to 

candidate. 

The committee has always 

expenditures on Schedule I 

classified as solicitation 

to convince the recipient to 

these disbursements are 

reported its direct mail (solicitation mailings) expenses as operating 

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

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

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

repoi iited on Schedule B, Line 24 as independent expenditures. 

Direct MUl P3rraiii id 

Regardless the type of direct mail being discussed, there is an inevitable pyramid that affects all 

mailings, but in this instance, we will center the discussion on direct mail solicitations. 

Right to the Trash 

Opened & 

Skimmed 

Read 1st 

Paragraph 

Page I 4 
As the direct mail pyramid 

mail piece, throw it away 

package designer to develclp 

"hook" might be the desigi i 

envelope; or simply a return 

celebrity. 

demonstrates, a large segment of the population receiving a direct 

Yithout 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 

address from a prominent signor who might be an elected official or 

Once the direct mail paci 

purpose of pushing the 

spurring that individual 

As stated, FDF sends its d 

to FDF or another conservi 

influence their vote - we 

solicit a contribution to FC 

Moving an individual to 

Therefore, it is imperative 

language that touches a ra' 

an FDF direct mail piece 

to the reader, not trying to 

DeHnitioii of Ind< 

UK term "independent i 

expressly advocating the < 

:ka ;e is opened, emotionally charged passages are highlighted with the 

rea ier to the end of the letter and eliciting a reaction that will result in 

tovi^ard contributing. 

\ pect mail to like-minded individuals who have previously contributed 

' itive group or committee. The purpose of these mailings is NOT to 

know with nearly 100% certainty how they will vote - our goal is to 

F. 

aqt, particularly when that effects their checkbook, is not easy. 

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

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

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

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

ident 

nditure " means an expenditure by a person for a communication 

lection or defeat of a clearly identified candidate... 

§xoo.XX(1*)C2) Eximssly advocating 

Reasonable minds could n U differ as to whether it encourages actions to elect or defeat one or 

more clearly identified cat didate(s) or encourases some other kind of action, [emphasis added] 

The FDF direct mail progi im was NOT designed to encourage the recipient to elect or defeat 

one or more clearly identi^ed candidate(s) - it was to encourage some other kind of action -

contributing to FDF. 

Further, the FEC PAC Gu 

The committee 

Nowhere in the PAC Quid 

via the mail are to be repohed 

Page I 5 

de on page 11 states: 

may solicit contributions through...mass mailings... 

the Regulations or the Act does it state that fundraisirig solicitations 

as independent expenditures. 
The look and feel of a direct mail piece versus a voter contact mailing are drastically different. 

The primary components of a direct mail piece are: 

• Carrier Envelope; 

• Solicitation Letter; 

• Reply Form; and 

• Return Envelope. 

Another aspect of a direct mail piece is the repeated plea for donations using language like the 

following: 

...And that is w!^ a group like Freedom's Defense Fund is so important and so 

worthy of your immediate sup^rt of $35, $50, $100, $250, $500, $1,000 or even 

$5,000 at this time. 

Only then will we be able to provide the help these front-line conservative 

candidates need to run winning campaigns. 

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

March 31"... 

Sometimes PDF offers the donor an incentive: 

If you rush back $45 or more ...1 will send you a copy of my new book as soon as 

it is released... 

Again, the stated purpose of an PDF direct mail piece is to generate contributions to the 

committee so that help can be provided to "front-line conservative candidates". And when 

"urgent action" is requested - that action refers to sending a contribution to PDF. 

A voter contact mailing by contrast is generally an oversized postcard with pictures and/or 

graphics to quickly inform the recipient that candidate "A" is a wholesome, red-blooded 

American, while candidate "X" is a "red". The oversized postcard by-passes the direct mail 

pyramid because there is nothing to open, and even if the piece goes directly to the trash, a welldesigned piece may have the intended impact during the few seconds it is in the receivers hand. 

Page I 6 
FEC Audit of the X008 Elcctimi Gyele 

The 2008 Election Cycle a :tivities of Freedom's Defense Fund were audited by the Federal 

audit staff and the committee disagreed on the amount of the 

lave been reported as independent expenditures. However, all those 

media ad buys and NOT with FDF's direct mail program. 

Election Commission. The 

disbursements that should 

expenditures had to do wit 

If the audit staff determine 1 

Schedule B, Line 21(b) foi 

the 2012 cycle, FDF shoul 

Schedule B, Line 24 as ind 

FDF makes every attempt 

that the audit staff is apply 

committees like FDF shou 

regardless of the action be 

retroactively apply a differen 

that the committee's direct mail program was properly reported on 

the 2008 election cycle; how is it that the audit staff can claim diat for 

have reported $868,015 related to its direct mail program on 

ependent expenditures? 

comply with the Act and Regulations, but in this instance, it appears 

ng a different standard. Should the Commission decide that 

d i^ore the purpose of an expenditure, and focus only on language, 

ig encourag^ - FDF will certainly conform. However, to • 

it standard should not be the Commission's policy. 

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

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

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

verified the proper reporting of those disbursements. 

Page I 7 
Finding 

Audit Finding 

The audit staff identified th 

with purposes of "direct mi 

documentation provided w&s 

reported as an operating ex 

expenditure. 

dil 

The committee has contacted 

however at the time of this 

ithis finding is similar to Fin 

request for documentation, 

expenditures and not indepbi 

Page I 8 

ReeordkeeiHng Inr Connnnnicati<WM 

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

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

insufficient to determine whether the expense was properly 

)ense or whether it should have been reported as an independent 

the vendors in question and requested the desired documentation, 

filing has yet to receive any of the records. As the overriding issue of 

ding #3; the committee, while continuing to satisfy the audit staffs 

asserts that its direct mail expenses are properly reported as operating 

ndent expenditures. 
In Sunmiayy 

The audit staff has identifi^ four (4) areas of concern and PDF has addressed each of these. 

PindinR 1. Misstatement of Financial Activity 

The committee is amending its reports to reflect the changes identified by the audit staff. 

Finding 2. Disclosure of Oj»upation and Employer 

The initial disclosure reports filed by PDF identified 2,911 itemized contributions totaling 

$378,639 of itemized contributions, that lacked tiill disclosure of the contributor's 

occupation and name of employer. The committee utilized "best efforts" procedures and 

received the missing data on 9S% of those previously missing the required information. 

The committee is amending its FEC Reports to reflect the added information. 

Finding 3. Reporting of Afiparent Independent Expenditures 

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

PDF reported the disbursements 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 disbursements should have been reported as independent expenditures. 

The committee points to its 2008 Election Cycle Audit as evidence that these expenses 

have been properly ii 

Finding 4. Recordkeeping 

The committee is st 

audit staff. 

Finally, if there are any que 

everyAing needed to satisf 

Page I 9 

ir Communications 

11 in the process of gathering the documentation requested by the 

stions or clarifications needed, PDF is more than willing to do 

your requests.