FEDERAL ELECTION COMMISSION 

WAS( (INGTON. D.C. 20463 

Apri l 20i 2010 

MEMORANDUM 

TO: Joseph F. Stoltz 

Assistant Staff Director . 

FROM: Chnstopher Hughey -T 

Deputy General Counser 

Lawrence L. Calvert. JiC^^]>^::;22^ 

Associate General CcuH^lf, 

Lorenzo Holloway 

Assistant General Counsel 

For Public Finance and Audit Advice 

Albert Veldhuyzen s^i 

Attomey 

Allison T. Steinle 

Attomey 

SUBJECT: Preliminaiy Audit Repoit on John Edwards for President, Inc. (LRA # 743) 

1. INTRODUCTION 

The Office of the General Counsel has reviewed the proposed Preliminary Audit Report 

("PAR") for John Edwards for President, Inc. C*the Conmiittee"). Our comments address various 

aspects of Finding 1. We concur with the remaining findings not specifically discussed in this 

memorandum. If you have any questions, please contact Albert Veldhuyzen or Allison T. 

Steinle, the attomeys assigned to this audit. ^ 

* The Office ofthe General Counsel recommends that the Conimission consider this document in Executive 

Session because the Commission may eventually decide to pursue an investigation of matters contained in the PAR. 

nC.F.R.§§ 2.4(a) and (b)(6). 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Repon 

LRA #743 

Page 2 

II. FINDING 1 - MATCHING FUNDS RECEIVED IN EXCESS OF 

ENTITLEMENT 

A. INCLUSION OF GENERAL ELECTION CONTRIBUTIONS, REFUNDS, 

AND REDESIGNATIONS ON THE AUDIT DIVISION'S NOCO 

STATEMENT 

The Committee accepted private general election contributions during the primary 

election period under the conditions set forth in Advisory Opinion (**A0") 2007-03 (Obama). 

When the candidate withdrew from the Presidential primary race on January 30,2008. the 

Committee was required to refund or redesignate those contributions. See \ 1 C.F.R. 

§ 102.9(eX3); AO 2008-04 (Dodd); AO 2007-03 (Obama); AO 2003-18 (Smith). After the 

candidate's date of ineligibility ("DOF), the Committee was only entitled to receive additional 

matching funds to the extent it had remaining Net Outstanding Campaign Obligations 

("NOCOs"). 11 C.F.R. § 9034.1(b). Consequently, within fifteen days of DOL lhe Commitlee 

was required to submit a Statement of Net Outstanding Campaign Obligations ("NOCO 

Statement"), which the Audit Division used to calculate the Committee's entitlement to matching 

funds. 11 C.F.R. § 9034.S. On its NOCO Statement, however, the Committee excluded from 

cash the contributions received for the genera] election during the primary election period, but 

included as part of accounts payable the subsequent refunds and redesignations of those 

contributions. This caused the Committee's NOCO Statement to show a larger deficit than was 

actually the case, and the Commission to certify more matching funds than the Committee would 

have otherwise been entitled to. The PAR concludes that the Committee received nearly S3.S 

million in excess of entitlement primarily because its NOCO statement understated its cash by 

excluding the general election contributions and overstated its liabilities by including the refunds 

and redesignations for the general election contributions. 

We agree with the Audit Division that the Committee received matching funds in excess 

of entitlement due to its showing of a larger deficit on its NOCO Statement than was actually the 

case. However, the PAR's conclusion that the Committee imderstated its cash and overstated its 

liabilities raises the question of whether the Committee's general election contributions, refimds, 

and redesignations should be included or excluded in the NOCO Staiement. 

There is nothing that legally either requires or prohibits the inclusion of general election 

contributions, refunds, and redesignations in the NOCO Statement.^ See 11 C.F.R. § 9034.5. 

Thus, we conclude that the Audit Division may take either approach, provided that, if the general 

election contributions and any subsequent refund and redesignation obligations are included in 

the N(X!0 Statement, they net each other out as assets (cash on hand) and liabilities (accounts 

payable). 

~ This applies both to NOCO Statements submitted by committees after their candidates' DOIs in support of 

dieir requests for matching funds, and to the NOCO Statements as adjusted by the Audit Division that are included 

in its audit reports ofany publicly financed Presidential primary committee. 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA H 743 

Page 3 

In our opinion, however, it appears that excluding the general election fiinds from the 

NOCO Statement is the approach most consistent with both the purpose ofthe NOCO Statement 

and two recent Commission advisory opinions addressing the receipt of general election 

contributions by Presidential primary candidates. The general election funds are related to the 

general election, not to the candidate's publicly financed primary campaign for the nomination. 

The purpose of a NOCO Statement is to determine a candidate's financial status and entitlement 

to matching funds after the DOI with respect to that candidate's participation in the primary 

elecrion under the Presidential Matching Payment Account Act ("Matching Payment Program"). 

See 11 C.F.R. § 9034.S; Explanation and Justification for 11 C.F.R. § 9034.5.44 Fed. Reg. 

20.336,20,340 (Apr. 4, 1979). 

Although section 9034.5 does not explicitly exclude general election funds from what 

should be included on the NOCO Statement, an account containing only contributions designated 

for the general election but received during the primary election period should not affect a 

candidate's financial status or entitlement to matching funds with respect to the primary election. 

Once a candidate fails to qualify for the general election or. in the case of Presidential 

candidates, elects to receive public fmancing for the general election campaign, the general 

election contributions become impermissible fiinds that must be refunded, redesignated, or 

disgorged. .See AO 2008-04 (Dodd); AO 2007-03 (Obama); AO 2003-18 (Smith). For this 

reason, candidates must use an acceptable accounting method to distinguish between 

contributions designated for the primary election and contributions designated for the general 

election, must limit access to the general election funds, and may not use those funds for any 

purpose. See 11 C.F.R. § 102.9(e); AO 2008-04 (Dodd); AO 2007-03 (Obama). In the case ofa 

committee such as the Edwards Committee that does not qualify forthe general election, if one 

assumes that the committee has adequately segregated general election contributions from its 

primary election funds, the amount of general election contributions received should exactly 

equal the obligation to make refunds, obtain redesignations, or make disgorgement payments. 

Accordingly, if such a candidate has participated in the Matching Payment Program, the general 

election contributions and the refund obligation should net to zero and thus should neither 

increase nor decrease the amount of post-DOI matching funds to which a committee may 

otherwise be entitled. Because the general election accounts should have no impact on post-DOI 

matching fund entitlement, we believe they should not be included on a committee's NOCO 

Statement as a matter of policy. ^ 

Again, however, there is nothing that legally prevents these amounts from being included 

in the NOCO Statement. See 11 CF.R. § 9034.5. Accordingly, the auditors may elect to include 

these amounts in the Audit Division's adjusted NOCO Statement, so long as the general election 

contributions and any obligations to make general election refunds or redesignations net each 

other out as assets and liabilities. 

^ We recognize that one disadvantage to this approach is that it fiiils to provide an accurate "overall" picture 

ofthe Committee's financial status. However, the Audit Division could address this concem by adding an 

accompanying footnote to the NOCO Statement that explains the existence ofthe general election funds and 

transactions related to general election fiinds. Moreover, the general election funds will be reflected on the 

Committee's disclosure reports. 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Repon 

LRA # 743 

Page 4 

B. THE COMMITTEE HAS NOT ESTABLISHED THAT CERTAIN PAVROLL 

EXPENSES PAID AFTER DOI ARE QUALIHED CAMPAIGN EXPENSES 

The Audit Division concluded that certain payroll expenses paid after DOI are nonqualified campaign expenses, and as a result did not include these expenses as a liability on the 

NOCO Statement. Specifically, the Committee made $761,192 in payments to staffers, and for 

associated payroll taxes, on Febmary 7,2008. Ninety-nine staff members received payments. 

The Committee's normal pay periods for January 2008 ended on January 1S, 2008 and January 

30,2008, but the Committee appears to have created an extra pay period that both began and 

ended on January 31,2008 and was paid on February 7,2008. The Committee has submitted a 

written response and spreadsheet that breaks down these payments as follows: (I) $204,322 in 

back pay owed from the January 30,200S pay period; (2) $205,182 in **sa]ary increases" paid for 

December 23,2007 to January 30,2008; and (3) $351,688 in winding down expenses paid for 

January 31.2008 to February 15.2008. The draft PAR concludes that everything but the back 

pay owed from the January 30,2008 pay period was a monetary bonus paid after DOI, and lhat 

this monetary bonus was not a qualified campaign expense because it was not provided for in a 

written contract made prior to DOL See 11 C.F.R. § 9034.4(a)(5). 

We agree with the Audit Division that everything but the back pay owed from the 

January 30.2008 pay period should be considered a non-qualified campaign expense. We. 

however, address each part ofthe Committee's breakdown below. 

Back Pay Owedfrom the January 30, 2008 Pay Period 

The Committee claims that $204,322 is back pay owed fiom the January 30,2008 pay 

period. We agree with the Audit Division that the $204,322 was back pay owed from the 

January 30.2008 pay period and therefore was a qualified campaign expense. Qualified 

campaign expenses are defined as expenses "incurred by or on behalf of a candidate or his or her 

authorized committee from the date the individual becomes a candidate through the last date of 

the candidate's eligibility." 26 U.S.C. § 9032(9); 11 C.F.R. § 9039.9. The auditors have verified 

that the Committee had incurred and owed $204,322 in salary expenses prior to DOI. 

Specifically, staffers were only paid half of their normal net salary for the pay period that ended 

on January 30,2008 and were therefore owed an additional $204,322 in ordinary salary prior to 

DOI. 

Salary Increases for December 23, 2007 to January 30, 2008 

The Committee claims that 8205,182 ofthe S76l,l92 in payroll was intended as "salary 

increases" for the period between December 23.2007 and January 30.2008. The Comminee 

states that these salary increases were intended ''primarily to compensate staff for the fact that 

[the Committee] dispatched staff to many different field locations throughout the country for the 

January primaries and caucuses, placing them on an around-the clock schedule." Response of 

John Edwards for President to Supplemental Exit Conference Preliminary Audit Findings 

("Supplemental Committee Response") at 1-2 (Apr. 16,2009) The Committee states that it 

decided to increase staff salaries in December 2007, and that this increase was to be paid out "as 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA # 743 

5 

permitted by Committee resources." Id. However, the Committee has been unable to produce 

any written contracts or other documentation to verify this claim, and has stated that no 

employment contracts that specified staff salaries existed. 

The Commission's regulations place the burden on a committee to prove that an expense 

is a qualifled campaign expense, and candidates agree in writing to "obtain and furnish to the 

Commission any evidence it may request of qualified campaign expenses." 26 U.S.C. 

§ 9033.1(a)(1); 11 C.F.R. § 9033.11(a). In LaRouche's Comm. for a New Bretton Wooils v. 

FEC, 439 F.3d 733, 738 (D.C. Cir. 2006), the court concluded that the Commission was not 

required to find that an expense was a qualified campaign expense where the commiuee failed lo 

produce any document by which the Commission could either quantify or determine the 

reasonableness of the expense. Here, as noted above, the Committee has not provided any 

documentation or a verifiable basis to support its assertion that $205,182 was for salary increases 

to compensate employees for work performed prior to DOL Accordingly, we conclude that the 

Committee has not met its burden of proving that the $205,182 was a qualified campaign 

expense. To establish that the $205,182 was a qualified campaign expense, the Committee 

should provide any written contracts, memoranda, payroll records, e-mails, or other 

contemporaneous documents that establish this amount was intended as a permanent increase in 

ordinary salary to compensate staff for work performed prior to DOI, or a written contract made 

prior to DOI that provided for a monetary bonus.^ 

Winding Down Expenses for January 31. 2008 to February 15. 2008 

The Committee claims that the remaining S351,688 ofthe $761,192 in payroll was 

intended as winding down expenses for the period between January 31,2008 and Febmary 15, 

2008. However, the Committee is somewhat unclear in its v^oitten response about why this 

amount was a winding down expense. The Committee first suggests that this amount was 

intended as an additional salary payment to help retain staff for necessary winding down 

activities such as returning cars to their required destination, closing offices and volunteer sites, 

and returning rental equipment. At the same time, however, the Committee claims that this 

^ This level of documentation is necessaiy because in its absence, we would conclude that the payments were 

monetary bonuses paid after DOL The Commission's regulations expressly state that monetary bonuses paid to staff 

after DOI in recognition of campaign-related activities or services are considered qualified campaign expenses only 

if they are paid no later than 30 days after DOI and are provided for in a written contract made prior to DOI. 11 

C.F.R. § 9034.4(8)(S). While the Committee claims that this portion of the payroll was intended as "salary 

increases" rather ttian monetary bonuses, bonuses are generally defined as any payments that are made "in addition 

to or in excess of compensation that would ordinarily be given." Black's Law Dictionary 194 (8th ed. 1999). The 

Commission specifically promulgated section 9034.4(a)(5) to prevent "publicly funded canq)aigns [from] paying 

large monetary bonuses after IDOI] upon discovery of excess public funds." See Explanation and Justification for 

Public Financing of Presidential Candidates and Nominating Conventions, 68 Fed. Reg. 47,386,47,390 (Aug. 8, 

2003). Here, according to the Committee's own figures, the extra payment represented a 31 percent increase on top 

of the salary that the staff was ordinarily paid. Moreover, these '^salary increases" were not included in the staffs 

ordinary payroll prior to DOI, despite the fiact that the Conunittee appeared to have sufficient funds to include them 

in the ordinary payroll. Therefore, we believe the Committee must either document that the $205,182 was intended 

to permanently increase the staffs ordinary salary, or produce a wntten contract made prior to DOI that provided for 

the monetary bonuses pursuant to section 9034.4(aX5). 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA #743 

Page 6 

amount was intended to reimburse employees for the lodging, fuel, and meal costs they incurred 

while conducting winding down activities "in lieu ofany attempt to have employees tum in 

receipts for reimbursement." Supplemental Committee Response at 2. 

Winding down expenses are considered qualified campaign expenses so long as they are 

"associated with the termination of political activity related to a candidate's seeking his or her 

election," and can include staff salaries. 11 C.F.R. §§ 9034.4(a)(3)(i); 9034.11. Again, however, 

the Committee has not provided any documentation or a verifiable basis to support its assertion 

that $351,688 was for salary payments to compensate staff for wmding down activities.^ 

26 U.S.C. § 9033.1(a)(1); 11 C.F.R. § 9033.11(a); LaRouche, 439 F.3d at 738. Accordingly, we 

conclude that the Committee has not met its burden of proving that $351,688 was a qualified 

campaign expense. 

The Audit Division has informed this Office that 85 ofthe 99 staffers did not receive any 

other salary payments in February because they did not remain with the campaign after DOI. To 

the extent to the $351,688 represents a salary payment to those staffers, the Committee should 

provide any vmtten contracts, memoranda, payroll records, e-mails, or other contemporaneous 

documents that establish this amount was intended as an ordinary salary paynient to compensate 

staff for winding down activities. However, 14 staffers remained with the campaign after DOI 

and continued to receive ordinary biweekly salary payments throughout the month of Febmary. 

Therefore, to the extent that the $351,688 represents an increase in these 14 staffers* ordinary 

salary, the Committee should document that this amount was intended as a permanent increase in 

ordinary salary to compensate staff for winding down activities, or provide a written contract 

made prior to DOI that provided for a monetary bonus pursuant to section 9034.4(a)(5). 

' The 0)mminee's claun that at least part of the $351,688 was intended to reimburse staff for the lodging, 

fuel, and meal costs they incurred while conducting winding down activities is not supported by thc evidence. As 

the Audit Division notes in the draft PAR, the Committee had a reimbursement system in place, which it continued 

to use to reimburse staff on a per expense basis through the winding down period. Even assuming that this amount 

was in &ct intended to reimburse staff for additional winding down costs, we note that Commission regulations limil 

how committees may reimburse staff for costs incurred from ttieir personal funds in the course of providing services 

to or on behalf of a campaign. 11 CF.R. §§ 100.79(a), 116.5. Specifically, payments made from stafTers' personal 

fiinds for transportation and usual and normal subsistence expenses that exceed an aggregate of S 1,000 per election 

or $2,000 per calendar year are considered contributions unless they are reimbursed by the Commiltee within 30 

days after the expense was incurred or 60 days after the closing date ofthe billing statement if they were put on a 

credit card. Id. Committees are required to treat and report the obligations arising firom these sufT payments as 

debts until they are reimbursed. 11 C.F.R. § I16.S(c), (e). Accordingly, here, the Committee could have potentially 

been in violation of section 116.S if it paid lump sum amounts intended to reimburse staffers fbr unspecified—and 

possibly partial or non-existent—lodging, fuel, and meal costs. 11 C.F.R. §§ 100.79(a), 116.5. 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA # 743 

Page 7 

C. THE AUDIT DIVISION SHOULD ALLOW ESTIMATED WINDING DOWN 

EXPENSES THROUGH 2011 

The Audit Division calculated the Committee's estimated winding down expenses as 

$1,178,025 (January 31,2008 through December 31,2008). This line item is listed on the 

Committee's NOCO Statement as a liability. However, the Committee has included estimated 

winding down expenses of $841,060 more than the Audit Division. This disagreement is due to 

different estimates as to how long the winding down process will take. In its response to thc exit 

conference preliminary audh findings, the Committee states it should be entitled to winding 

down costs until the end of 2011, whereas the Audit Division believes a reasonable winding 

down time frame is the end of 2010.^ For the reasons stated below, this Office believes that the 

Audit Division should revise the PAR to allow winding down expenses through 2011. 

In making its legal argument, the Committee cites 11 C.F.R. § 9034.11(b), which 

specifies that the matching funds paid to a committee for winding down expenses shall not 

exceed the lesser of: 

(1) 10 % ofthe overall expenditure limitation pursuant to 11 C.F.R. § 9035.1; or 

(2) 10% ofthe total of: 

(i) The candidate's expenses subject to the overall expenditure 

limitation as of the candidate's date of ineligibility; plus 

(ii) The candidate's expenses exempt from the expenditure 

limitations as of the candidate's date of ineligibility; except that 

(iii) The winding down limitation shall be no less than $100,000. 

Both the Audit Division and the Committee agree that the Committee's estimated 

winding down expenses fit within the ten percent limitation of 11 C.F.R. § 9034.11(b)(2). 

However, the Committee argues that: (1) because its estimated winding down expenses are 

within the limitation, the auditors should not adjust them; (2) its estimates are based on past 

experience that the winding down process will last longer than Audit Division projects; and (3) if 

forced to accept the Audit Division's estimated winding down expenses, it could be impossible 

to recapture any repaid public funds because the "deficiency might not become apparent until 

many months in the future." Response of John Edwards fbr President to Exit Conference 

Preliminary Audit Findings ("Committee Response") at 4 (Feb. 20,2009). 

The Audit Division counters that the ten percent limitation is a cap, not an entitlement 

and therefore, they may reasonably question the Committee's winding down expenses. The 

Audit Division proposes to readjust estimated winding down expenses in the event the audit 

process extends into 2011. 

' In its response to the exit conference, die Committee identified "several erroneous assumptions" in the 

Audit Division's calculation of winding down expenses to include, among others, salary, rent, software 

maintenance, and contribution processing. The auditors have since reconciled these differences with the Committee 

and the only remaining disagreement concerns the length of time of the winding down period. See Committee 

Response at 4. 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA If 743 

Pages 

Before we address the merits of the arguments made, we need to first explore thc history 

and purposes behind the ten percent limitation and whether the Commission has ever considered 

a time limit to winding down expenses. The Commission has recognized that, in the past, 

"issues have arisen as to the appropriate amounts and types of winding down expenses and as to 

the length of time committees need to wind down To avoid these disputes in the future, the 

Commission has decided to place certain reasonable restrictions on the amount of public funds 

used for winding down expenses." Explanation and Justification for 11 CF.R. § 9004.11,68 

Fed. Reg. 47,386,47,390-91 (Aug. 8, 2003). 

In its mlemaking regarding 11 C.F.R. § 9034.11(b), the Commission adopted the ten 

percent limitation^ but it specifically declined to impose a winding down time limit although 

such a time limit was initially proposed in the Notice of Proposed Rulemaking ("NPRM"). The 

NPRM noted that the Commission considered a time limit but declined to adopt one in 1983 and 

1995. The Commission ultimately declined to impose a time limit because it would be "quite 

difficult to select an amount or time frame sufficient to meet reasonable expenses incurred in 

winding down the campaign." Notice of Proposed Rulemaking, Restrictions on Winding Down 

Costs, 68 Fed. Reg. 18,485 (Apr. 15,2003). However, in 2003, the Commission specifically 

proposed a limitation on the winding down period. In its final rules, the Commission ultimately 

decided against a winding down time limitation because it believed lhat "the winding down 

monetary limitation will be sufficient to address its concems that winding down be completed 

expeditiously." Explanation and Justification fbr 11 C.F.R. § 9004.11(c), 68 Fed. Reg. 47,386. 

47,393 (Aug. 8,2003). The Commission noted that "several commenters opposed these 

temporal limits because after the expiration of this period, campaigns may be involved in 

enforcement actions, repayment determination court challenges, investigations by other 

govemment entities, or other lawsuits." Id. Therefore, the Commission has specifically 

considered and rejected a winding down period after which matching funds cannot be used. Id. 

Given the Commission's stated position regarding this issue, it would be hard for the 

Audit Division to justify imposing a different winding down period estimate than the Committee. 

Both the Committee and the Audit Division agree that the Committee's winding down estimates 

are within the regulatory limitation. The Audit Division is correct that the committees are not 

allowed to automatically claim the maximum amount under the limitation as the amount of the 

winding down expenses. The Audit Division, therefore, retains some discretion in evaluating the 

subject matter ofthe amount below the limitation to ensure that those expenses meet the 

definition of winding down expenses and to ensure that they are reasonable. The Audit Division 

has not argued that the subject matter of the Committee's expenses does not meet the definition 

of winding down expense or that they are unreasonable. Hence, there does not appear to be a 

compelling reason to question whether the regulatory monetary limitation must be supplemented 

by a time limitation in this case, especially in light of the fact that the Commission implemented 

^ The Commission noted that "this percentage would allow most campaigns, particularly small campaigns of 

unsuccessful candidates, to pay necessary winding down costs without exceeding the winding down limitation, and 

ensure that only canqiaigns with extraordinarily high winding down expenses exceed die winding down limitation." 

Explanation and Justification for 11 C.F.R. § 9034.11(b), 68 Fed. Reg. 47.386,47,408 (Aug. 8,2003). 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA # 743 

Page 9 

its rule specifically to avoid disputes of this nature in the future. Explanation and Justification 

for 11 C.F.R. § 9004.11, 68 Fed. Reg. 47,386,47,390-91 (Aug. 8,2003). 

Given the reasons outiined above, this Office recommends that the Audit Division revise the 

PAR and NOCO Statement to allow estimated winding down expenses for the Committee 

through 2011. 

D. OBJECTION TO REPAYMENT OF MATCHING FUNDS 

Based on a review of the Committee's NOCO Statement, the Audit Division recommends 

that the Commission determine that the Committee repay $3,498,013 to the United States 

Treasury because the Committee received public funds in excess of entitlement. The Committee, 

however, argues that repayment is not due because entitlement to public funds for eligible 

candidates must be based "solely on the source, size, and timing of the contributions received 

prior to the date of ineligibility." Committee Response at 4. We understand this to mean, in 

essence, that in the Committee's view, if it received a matchable contribution prior to the 

candidate's DOI, it is entitled to a matching payment for that contribution, regardless of when it 

submitted the contribution for matching and regardless of whether the matching payment was 

made prior to or after DOI. Accordingly, the Committee argues that the size ofthe Conunittee's 

NOCOs at the time the United States Treasury actually paid the public funds was irrelevant to 

the Committee*s entitlement and the Audit Division improperly '^refused to match valid 

contributions received while the candidate was active and eligible." Id. at 5. 

This is not an issue of first impression. Contrary to what we understand to be the 

Conimittee's position, the Commission's regulations specifically provide that that an ineligible 

candidate without NOCOs has no entitlement to additional matching payments **regardless of the 

date of deposit of the underlying contributions.*' 11 C.F.R. § 9034.1(a) (emphasis added). The 

Commission has consistentiy rejected arguments similar to the Committee's, and concluded that 

for an ineligible candidate to receive matching funds, not only must the matched contributions be 

matchable—a requirement that applies both before and after DOI—but the inehgible candidate 

must also have remaining debts on the most recent NOCO Statement. See, e.g., 11 C.F.R. 

9034.1(a) and (b); Explanation and Justification for 11 C.F.R. § 9034.1,48 Fed. Reg. 5,224, 

5,227 ^eb. 4,1983); Mondale fbr President Committee Final Audit Report ("FAR") at 57-58, 

64-68 (Oct. 28, 1986); Dukakis for President Comniittee FAR at 31-33 (Dec. 17, 1991); 

Clinton/Gore '92 Committee FAR at 12-13 (Dec. 27,1994). 

As the Commission noted at length in the Clinton/Gore '92 Committee FAR, the 

Commission has a long and consistent history of conditioning a candidate's remaining 

entitlement after DOI on the candidate's NOCOs at the time the matching funds are paid. 

Section 9034.1(b) ofthe Commission's regulations states that after DOI, candidates may 

continue to receive payments only to the extent they have sufficient NOCOs. Section 9034.1(b) 

dates to a December 1976 memorandum to the Commission proposing an amendment to then 

section 134.3(c)(2) of the Commission's regulations. The proposed rule stated that "a candidate 

shall be entitled to no further matching funds if, at the time of any submission for certification, 

the total contributions and matching funds received after tbe ineligibility date equals or exceeds 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA # 743 

Page 10 

the net obligations outstanding on tiie date of ineligibility." The 1979 Explanation and 

Justification for section 9034.1 explained tiiat for candidates who have NOCOs after DOI. 

"[b]asically, these candidates are entitied to payments only if the private contributions received 

between the date of ineligibility and die date of submission are not sufficient to discharge the net 

debt." Explanation and Justification fbr 11 CF.R. § 9034.1,44 Fed. Reg. 20,336,20.338 (Apr. 

4,1979). The Commission explained that this regulation '^furthers the policy that the candidate 

should use private contributions to discharge campaign obligations wherever possible." Id. 

Most importantly, in 1983, tiie Commission revised these regulations to make clear **that to 

receive matching funds after the date of ineligibility, candidates must have net outstanding 

campaign obligations as ofthe date of payment rather than the date of submission. Thus, if the 

candidate's financial position changed between the date of his or her submission for matching 

funds and the date of payment, reducing the candidate's net outstanding campaign obligations, 

that candidate's entitlement would be reduced accordingly." Explanation and Justification for 11 

C.F.R. § 9034.1,48 Fed. Reg. 5,224,5,227 (Feb. 4, 1983); see also Explanation and Justification 

for 11 CF.R. § 9034.5, 60 Fed. Reg. 31,854,31,868 (June 16,1995). Accordingly, the 

Commission has repeatedly rejected the position advanced here by the Committee as contrary to 

the plain meaning ofthe Commission's regulations, as well as long standing Commission 

practice and policy. See, e.g., Mondale for President Committee FAR at 57-58, 64-68 (Oct. 28, 

1986); Dukakis for President Committee FAR at 31-33 (Dec. 17,1991); Clinton/Gore '92 

Committee FAR at 12-13 (Dec. 27,1994). 

The Committee also argues that the unique circumstances of2007 and 2008 demonstrate 

why the position taken by the Commission over the years is wrong, and why its position is the 

only fair approach to determining the Committee's entitlement to public funds. In order to 

evaluate the Committee's argument, it is necessary to begin by briefly recounting what those 

circumstances were. 

The Commission first detennined Senator Edwards to be eligible for and entitled to 

matchmg funds in December 2007. Under normal circumstances, the United States Treasury 

would have made the initial payment of matching funds to the Committee on January 2,2008, 

the first business day oftiie election year. 11 CF.R. §§ 9037.1,9037.2. However, a shortfall in 

the Presidential Election Campaign Fund meant that tiiere were no funds available in the 

Matching Payment Account for the Treasury to pay to Senator Edwards or any other candidate 

on January 2. In fact, the United States Treasury did not make the first payment to the 

Committee until February 14,2008. Senator Edwards withdrew from the campaign on January 

30,2008, making tiiat date his DOI. See 11 C.F.R. § 9033.5. At that time, of course, he had 

received no payments at all from tiie Treasury and would not for another 15 days. 

Moreover, on December 31,2007, the Conimission lost its quomm. As a result, it could 

not certify Senator Edwards* entitiement to any amounts in addition to those it had certified 

earlier that montii. See 26 U.S.C § 9036; 2 U.S.C § 437c(c). As it happened, the Commission 

was unable to certify Senator Edwards' entitlement to any additional amounts until July 2008, 

months after the candidate's DOI. 
Memorandum to Joseph F. Stoltz 

Edwards for President Preliminary Audit Report 

LRA #743 

Page 11 

The Committee asserts fhat even under the Commission's longstanding approach to postDOI payments, but for the shortfall in fhe Presidential Election Campaign Fund and the lack of a 

Commission quomm, it would have already received by January 30 all but $2.9 million of the 

$12.8 million in matching funds it was eventually paid. Because of that, it notes, none of the 

amount it would have received prior to DOI would have been subject to repayment for having 

been received in excess of entitlement. Committee Response at 4. Thus, the Committee appears 

to argue that the Commission should change its approach and pay matching funds for all 

matchable contributions deposited by the Committee prior to DOI, because otherwise shortfalls 

in the Presidential Election Campaign Fund and unique circumstances like the lack of a 

Commission quorum will shortchange committees in the end, preventing them from receiving 

ftmds they otherwise would have received, or in some instances, like this one, requiring them to 

repay fiinds that they otherwise would not have had to repay. See id. 

The question, then, is whether, as the Committee claims, the unique circumstances of 

2007 and 2008 call for the Commission to ignore the plain meaning of 11 C.F.R. § 9034.1 and 

change its long standing practice and policy. We conclude they do not. The Committee's claim 

that section 9034.1 **presumes that eligible candidates have already received payments to which 

they are entitled prior to the date of ineligibility, and not, as in this case, after," see Committee 

Response at 5 n.4, is incorrect. When drafting the regulations, the Commission considered that a 

shortfall in tiie Presidential Election Campaign Fund might prevent a committee from being paid 

the full amount the Commission had certified prior to DOI. Explanation and Justification for 11 

C.F.R. § 9034.1, 56 Fed. Reg. 35,898,35,904-05 (July 29,1991). The Commission nevertheless 

concluded that post-DOI entitiement would be based on the candidate's NOCO at the time of 

payment of public funds rather than the date the matchable contributions were received or the 

date of submission. In particular, the Commission's regulations provide that "[a] fter the 

candidate's date of ineligibility, ifthe candidate does not receive the entire amount of matching 

funds on a regularly scheduled payment date due to a shortfall in the matching payment account, 

the candidate shall also submit a revised statement of net outstanding campaign obligations," on 

which basis the Commission may "revise the amount previously certified for payment." 11 

CF.R. §§ 9034.5(f)(3), 9036,4(c)(2). In other words, if a shortfall delays payment, any eventual 

payment will be based on any subsequent NOCO statement, and this may result in a reduction 

even to amounts already certified by the Commission. The Committee may wind up not 

receiving amounts it otherwise would have received but for the shortfall. The Commission was 

well aware of this when it promulgated the regulation. See also 56 Fed. Reg. at 35,904-05 

(noting that candidates' receipt of matching funds "could be affected by the amount of funds 

available in the matching payment accoimt"). 

Regardless of whether the Committee was paid the full amount the Commission had 

certified prior to DOI, the Committee should not be pennitted to receive public funds after DOI 

unless it has NOCOs that those funds will be used to pay. In this instance, as noted in Part ILA, 

the Committee's NOCO Statements at the time of payment appeared to support further payment 

of public funds, but the audit has revealed that the NOCOs were in fact overstated. 

Consequently, the Committee received funds m excess of entitiement.