FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 Li.. 

July 22,2011 

MEMORANDUM 

To: The Commission 

Through: Alec Palmer C^Y^K/^ 

Acting Staff Director 

From: Patricia Carmona "^C^ 

Chief Compliance Officer 

Thomas Hintermister —\ 

Acting Assistant Staff Director 

Audit Division 

Martin L. Favin 

Audit Manager 

By: Sheraline Thomas 

Lead Auditor 

Subject: Audit Division Recommendation Memorandum on Nader for President 2008 

(NFP) 

Discussed below is NFP*s response to the Draft Final Audit Report (DFAR) as well 

as the Audit Division's comments and recommendations. The Office of General Counsel 

(OGC) concurs with the recommendations in this memorandum. 

NFP declined the opportunity for an audit hearing. 

Finding 1. Net Outstanding Campaign Obligations 

In response to the DFAR, Counsel for NFP (Counsel) reiterated previous 

assertions regarding the Commission's regulations conceming both the 31-day postelection winding down costs and the Date of Ineligibility (DOI) mles and again noted diat 

these rules and regulations are unfair to small-budget campaigns like NFP who seek to 

complete the Commission audit quickly. Counsel stated that since the regulations do not 

allow for primary election winding down costs to occur until 31 days after the general 

election (December 6,2008), legitimate primary wind down occurring before diat date to 

deal with the audit are not allowed. Counsel added that if these expenses had been 

considered primary wind down,. .there would likely be no matching funds repayment 

issue at all." 
In the Statement of Net Outstanding Campaign Obligations (NOCO) presented by 

the Audit staff in the DFAR, a 70 percent allocation of expenses was applied to determine 

total primary wind down between December 6,2008 and March 31,2011 of $115,785. 

The NOCO surplus at DOI (September 4,2008) was $75,459. Based on diis NOCO, 

federal fimds received in excess of entitlement, and therefore owed to the U.S. Treasury, 

were determined to be $56,165. 

In response to the DFAR, NFP provided a detailed analysis of its allocation of post 

December 5,2(X)8 wind down expenses. NFP officials noted that they began providing 

records to the Audit staff in August 2008 in preparation for the Commission audit and that 

audit fieldwork concluded in December 2008. NFP sold all its assets from its 

headquarters that were uimecessary for the audit and placed all of its records and 

remaining assets in storage. As of December 31, 2008, NFP had virtually completed its 

wind down for the general election. A listing of five primary-related staff involved in the 

NFP audit from December 6 through December 31,2008 was included along with their 

roles and responsibilities. A listing of seven additional staff paid during both the primary 

and general cycles tiiat assisted in shutting down both the primary and general functions 

from December 6 dirough December 31,2008 was also included along with their roles 

and responsibilities. They also explained that after January 1,2009, NFP had no offices 

and the only payroll/consulting payments were to the five primary-related staff. After 

March 1,2009, only two of these staff remained on payroll and no one has been on the 

payroll for more than a year. 

NFP officials presented a proposed allocation method in response to the DFAR. 

All expenses from December 6,2008 through December 31,2008 were allocated 70 

percent to die primary totalmg $45,938 ($65,625 x .70). So diere was no change in die 

amount allocated to the primary for this period. However, all expenses from January 1, 

2009 through June 30,2011 were allocated 95 percent (instead of 70 percent) to the 

primary totaling $95,862 ($100,907 x .95). Therefore, primary winding down costs 

totaled $141,800 ($45,938 + $95,862) for die period December 6,2008 durough June 30. 

2011. This results in a revised overall primary wind down percentage of 85 percent 

($141,800/$166,532). 

Pursuant to 11 CFR §9034.11(c). a candidate who runs in both the primary and 

general elections may divide winding down costs between the primary and general 

committees using any reasonable allocation method. The regulation allows for no less 

than one third of die total winding down costs to be allocated to each committee but can 

allocate less than one third if it demonstrates such a reasonable mediod. The Audit staff 

reviewed NFP*s analysis of its allocation of post December 5.2008 wind down and 

accepts its calculations. Documentation and explanations regarding allocations of 

winding down costs support NFP's contention of an increase in the percentage allocated to 

die primary for expenses from January 1.2009 to June 30,2011 to 95 percent. This 

results in a revised overall percentage of 85 percent for primary wind down allocation 

from December 6,2008 through June 30.2011. 

As a result of these revisions, tiie primary wind down costs increase from 

$115,785 to $141,800. This revision, along widi an adjustment to estimated wind down 

based on additional information on actual winding down costs, results in a decrease to the 

"federal funds received in excess of entitlement" from $56,165 to $33,289. 
In addition, NFP Counsel references its previous response to the Preliminary Audit 

Report relative to its disagreement with die application of the 31-day rule to NFP. The 

Audit staff and OGC agree that die 31-day "bright line" rule at 11 CFR §9034.11(d) 

divides expenses based on a date rather than analyzing each expense; and. was set up to 

improve administrative efficiency, conserve resources and avoid prolonged disputes over 

the allocation of expenses. The Commission made a number of changes to the wind down 

mles in the 2003 rulemaking to avoid wind down allocation disputes and so even though 

expenses were incurred during die 31 days after the general election which were related to 

the audit fieldwork, the Audit staff and OGC do not recommend allowing primary wind 

down until after December 5.2008. 

The Audit staff recommends that the Commission find tfaat Mr. Nader received 

matching funds of $33,289 in excess of his entitiement and that $33,289 is repayable to the 

U.S. Treasury. 

Finding 2. Misstatement of Financial Activity 

In response to the DFAR, NFP Counsel reiterated that clarifications were agreed 

upon with die Audit staff and corrective amendments were filed. 

The Audit staff recommends that the Commission find that for the time period 

January 4,2008 through August 31,2008. Nader for President 2008 misstated its financial 

activity. 

Finding 3. Disclosure of Loans 

In response to the DFAR, NFP Counsel stated that corrective amendments were 

filed as soon as NFP was made aware of its inadvertent omission. 

The Audit staff recommends that the Commission find that for a line of credit 

secured by NFP, the required Schedule C-P-1 and a copy of the line of credit agreement 

were not filed until it was made aware of the omission by die Audit staff. 

If the above recommendations are approved, the Audit staff will prepare a 

Proposed Final Audit Report within 30 days of tfae Commission*s vote. Should an 

objection be received, Durective No. 70 states diat the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters 

folder. Should you have any questions, please contact Sheraline Thomas or Marty Favin 

at 694-1200. 

Attachments: 

- Draft Final Audit Report on Nader for President 2008 

- Office of General Counsel Analysis of DFAR (June 13,2011) 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division on 

Nader for President 2008 

January 4, 2008 - August 31. 2008 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political committee 

established by a candidate 

who receives public fiinds 

for the primary 

campaign.' The audit 

determines whether the 

candidate was entitied to 

all of the matching funds 

received, whether the 

campaign used the 

matching funds in 

accordance with the law, 

whether the candidate is 

entitied to additional; 

matching funds, and' 

About the Campaign (p. 2) 

Nader for President 2008 is the principal campaign committee for 

Ralph Nader, a candidate for the Independent Party's nomination 

for the office of the President of the United States. The 

committee is headquartered in Washington, DC. For more 

information, see the chan on the Campaign Organization, p. 2. 

Financial Activity (p. 3) 

• Receipts 

o Contributions from Individuals 

o Matching Funds Received 

o Candidate Contributions 

o Loans Received 

o Offsets to Operating Expenditures 

o Total Receipts 

Disbursements 

o Operating Expenditures 

iiiaiwiiiiig luiiua, aiiu , ^ . o Transfers to Nader General 

whedier die cainpaign''-'3 A ^^ViO^.-^Fu'^draismg Disbursements 

odierwise complied with ^''•'Svv "o^-^^SSl^^P^yTM®"^^ 

die limitations, ^^ '^^ o Refiinds of Contributions 

prohibitions, and ' ^'^:0 Total Disbursements 

disclosure requirements ' 

of the election law. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

$1,761,530 

753,535 

40,000 

300,000 

4.339 

$2,859,404 

$ 2.058.691 

103,408 

85,606 

300.000 

13.485 

$2,561,190 

Findings and Recommendations (p. 3) 

• Net Outstanding Campaign Obligations (Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

• Disclosure of Loans (Finding 3) 

26 U.S.C. §9038(a). 
Draft Final Audit Report of the 

Audit Division on 

Nader for President 2008 

January 4, 2008 - August 31, 2008 

"•r •. 

.

••..li:': • .•;'.» 
Table of Contents 

Page 

Part I. Background 

Audiority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Smnmaries 

Findings and Recommendations 3 

Summary of Amounts Owed to die U.S. Treasury 4 

Part IV. Findings and Reconmiendations 

Finding 1. Net Outstanding Campaign Obligations 5 

Finding 2. Misstatement of Financial Activity 14 

Finding 3. Disclosure of Loans 16 
Part I 

Background 

Authority for Audit 

This report is based on an audit of Nader for President 2008 (NFP), undertaken by die 

Audit Division of the Federal Election Commission (the Commission) as mandated by 

Section 9038(a) of Title 26 of die United States Code. That section states. "After each 

matching payment period, the Commission shall conduct a thorough examination and 

audit of die qualified campaign expenses of every candidate and his autiiorized 

committees who received [matcfaing] payments under section 9037." Also. Section 

9039(b) of die United States Code and Section 9038.1(a) (2) of die Commission's 

Regulations state diat die Commission may conduct other examinations and audits from 

time to time as it deems necessary. 

Scope of Audit 

This audit examined: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The receipt of transfers from other authorized committees. 

4. The disclosure of contributions and transfers received. 

5. The disclosure of disbursements, debts and obligations. 

6. The recordkeeping process and completeness of records. 

7. The consistency between reported figures and bank records. 

8. The accuracy of the Statement of Net Outstanding Campaign Obligations. 

9. The campaign's compliance with spending limitations. 

10. Odier campaign operations necessary to the review. 

Inventory of Campaign Records 

The Audit staff routinely conducts an inventory of campaign records before it begins the 

audit fieldwork. NFP records were materially complete and the fieldwork began 

immediately. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Dateof Registration March 4.2008 

• Eligibility Period^ July 15,2008 - September 4,2008 

• Audit Coverage January 4,2008 - August 31.2008 

Headquarters Washington, DC 

Bank Information 

• Bank Depositories Four 

• Bank Accounts Seven checking accounts 

Treasurer 

• Treasurer When Audit Was Conducted Cari J. Mayer 

• Treasurer During Period Covered by Audit Carl J. Mayer 

Management Information 

• Attended FEC Campaign Finance Seminar No 

• Who Handled Accounting and Recordkeeping 

Tasks 

Paid staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @ January 4,2008 $0 

o Contributions from Individuals 1,761,530 

o Matching Funds Received 753.535' 

o Candidate Contributions 40,000 

o Loans Received 300,000 

o Offsets to Operating Expenditures 4,339 

Total Receipts $2,859,404 

o Operating Expenditures $ 2.058,691 

o Transfers to Nader General 103.408 

o Fundraising Disbursements 85,606 

o Loan Repayments 300,000 

o Refunds of Contributions 13.485 

Total Disbursements $2,561,190 

Cash-on-hand @ August 31,2008 $ 298,214 

^ The Candidate was eligible For matching funds beginning on the date of certification of eligibility and ending on the date the 

Candidate announced his withdrawal from the campaign. See 11 CFR §9033. 

^ NFP received an additional $127,959 after September 4.2008 for a total of S881.494. This represents four percent of the 

maximum entitlement (S21,025,000) a Presidential candidate was eligible to receive in 2008. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Net Outstanding Campaign Obligations 

The Audit staffs review of NFP's financial activity dirough August 31,2008 and 

estimated winding down costs indicated tfaat tfae Candidate received matching funds of 

$62,698 in excess of his entitiement. In the Preliminary Audit Report (PAR), the Audit 

staff recommended that NFP provide evidence that the Candidate did not receive 

matcfaing fund payments in excess of entitlement. Absent such evidence. Audit staff 

stated that it would recommend that die Commission determine that $62,698 is repayable 

to die U.S. Treasury. 

In response to the PAR recommendation. NFP Counsel noted that some adjustments were 

necessary to die actual winding down costs category presented by the Audit staff in the 

Net Outstanding Campaign Obligations (NOCO) statement. Tfae Audit staff made die 

necessary adjustments and updated this category by replacing estimated costs with actual 

costs. As a result, the NOCO deficit was revised from $68,926 to $75,459, resulting in a 

reduction to die federal funds received in excess of entitlement figure from $62,698 to 

$56,165. NFP Counsel furdier contends diat (1)11 CFR §9034.11(d) is not fair to mmor 

party or independent committees such as NFP because it does not allow qualified, 

primary-related winding down costs until 31 days after the general election and NFP 

incurred $90,479 in costs related to die Commission's audit during this period, and (2) 

11 CFR §9032.6 is unfair to Mr. Nader because it results in his Date of Ineligibility 

(DOI) being September 4,2008, the last day of die last major convention, as opposed to a 

later date. 

The Audit staff further notes diat if NFP can document a reasonable allocation method 

for primary and general winding down costs incurred after December 5,2008, the 

Commission will consider allowing a larger primary allocation than the 70 percent agreed 

upon during audit fieldwork. (For more detail, see p. 5.) 

Finding 2. BUsstatement of Financial Activity 

A comparison of NFP's reported figures with its bank records revealed that from January 

4,2008 through August 31,2008, NFP overstated receipts by $17,106, understated 

disbursements by $74,599 and overstated ending cash by $91,705. The majority of die 

disbursements understatement was due to transfers NFP made to its General committee, 

diat were not reported. The Audit staff recommended that NFP amend its disclosure 

reports to correct the misstatements. In response to die PAR, NFP Counsel stated tfaat 

clarifications with the Audit staff were made for some differences and that NFP filed 

amended reports, correcting die remaining misstatements. The Audit staff notes that NFP 

representative made some clarifications and that NFP filed all requested amendments. 

(For more detail, see p. 14.) 
Finding 3. Disclosure of Loans 

NFP secured a line of credit in the amount of $500,000 on June 25.2008. but did not file 

the required Schedule C-P-1. or a copy of the line of credit agreement, until November 

21,2008, after the Audit staff made NFP officials aware of this omission. The Audit 

staff recommended that NFP provide any relevant comments it has on this issue. In 

response to the PAR, NFP Counsel stated that staff was unaware of the requirement to 

file a Scfaedule C-P-1 and a copy of tfae line of credit agreement, in addition to filing a 

Scfaedule C-P. and that as soon as it was made aware of this omission, it filed the missing 

items. (For more detail, see p. 16.) 

Summary of Amounts Owed to the U.S. Treasury 

Finding 1 Federal Funds Received in Excess of Entitiement $56,165 

Total Due U.S. Treasury $56,165 
Part IV 

Findings and Recommendations 

Finding 1. Net Outstanding Campaign Obligations 

Summary 

The Audit staffs review of NFP's financial activity througfa August 31,2008 and 

estimated winding down costs indicated tfaat tfae Candidate received matching funds of 

$62,698 in excess of his entitlement. In die Preliminary Audit Report (PAR), the Audit 

staff recommended that NFP provide evidence that the Candidate did not receive 

matching fund payments in excess of entitiement. Absent such evidence. Audit staff 

stated that it would recommend that the Commission determine that $62,698 is repayable 

to die U.S. Treasury. 

In response to the PAR recommendation, NFP Counsel noted that some adjustments were 

necessary to the actual winding down costs category presented by die Audit staff in the 

Net Outstanding Campaign Obligations (NOCO) statement. The Audit staff made the 

necessary adjustments and updated this category by replacing estimated costs with actual 

costs. As a result, die NOCO deficit was revised from $68,926 to $75,459, resulting in a 

reduction to the federal funds received in excess of entitlement figure from $62,698 to 

$56,165. NFP Counsel furdier contends diat (1) 11 CFR §9034.11(d) is not fair to minor 

party or independent committees such as NFP because it does not allow qualified, 

primary-related winding down costs until 31 days after tfae general election and NFP 

incurred $90,479 in costs related to tfae Commission's audit during this period, and (2) 

11 CFR §9032.6 is unfair to Mr. Nader because it results in his Date of Ineligibility 

(DOI) being September 4,2008, the last day of the last major convention, as opposed to a 

later date. 

The Audit staff furdier notes that if NFP can document a reasonable allocation method 

for primary and general wmding down costs incurred after December 5.2008. the 

Commission will consider allowing a larger primary allocation than the 70 percent agreed 

upon during audit fieldwork. 

Legal Standard 

A. Net Outstanding Campaign Obligations (NOCO). Widiin 15 days of die 

candidate's date of ineligibility (see definition below), the candidate must submit a 

statement of "net outstanding campaign obligations." Tfais statement must contain, 

among other things: 

• the total of all committee assets including cash-on-hand, amounts owed to the 

committee and capital assets listed at their fair market value; 

• the total of all outstanding obligations for qualified campaign expenses; and 

• an estimate of necessary winding-down costs. 11 CFR §9034.5(a). 

B. Date of Ineligibility (DOI). The date of meligibility is whichever of die following 

dates occur first: 

• the day on which die candidate ceases to be active in more than one state; 
• die 30th day following the second consecutive primary in which die candidate 

receives less than 10 percent of the popular vote; 

• die end of the matcfaing payment period, wfaich is generally the day when the 

party nominates its candidate for the general election; or 

• in the case of a candidate whose party does not make its selection at a national 

convention, tfae last day of the last national convention held by a major party in 

die calendar year. 11 CFR §§9032.6 and 9033.5. 

C. Qualified Campaign Expense. Each of the following expenses is a qualified 

campaign expense. 

• An expense diat is: 

o incurred by or on behalf of the candidate (or his or her campaign) diuing the 

period beginning on the day the individual becomes a candidate and 

continuing through the last day of the candidate's eligibility under 11 CFR 

§9033.5; 

o made in connection with the candidate's campaign for nomination; and 

o not incurred or paid in violation of any federal law or the law of tfae state 

where the expense was incurred or paid. 11 CFR §9032.9. 

• An expense incurred for the purpose of determining whether an individual should 

become a candidate, if that individual subsequently becomes a candidate, 

regardless of when that expense is paid. 11 CFR §9034.4. 

• An expense associated with winding down the campaign and terminating political 

activity. 11 CFR §9034.4(a)(3). 

D. Value of Capital Assets. The fair market value of capital assets is 60 percent of 

the total original cost of the assets when acquired, except that assets tfaat are received 

after the date of ineligibility must be valued at their fair market value on the date 

received. A candidate may claim a lower fair market value for a capital asset by 

listing the asset on the NOCO statement separately and demonstrating, througfa 

documentation, the lower fair market value. 11 CFR §9034.5(c)(l). 

E. Entitlement to Matching Payments after Date of Ineligibility. If, on the date of 

ineligibility (see above), a candidate has net outstanding campaign obligations as 

defined under 11 CFR §9034.5, tfaat candidate may continue to receive matcfaing 

payments provided tfaat fae or sfae still faas net outstanding campaign debts on the day 

the matching payments are made. 11 CFR §9034.1(b). 

F. Allocation of Primary and General Election Winding Down Costs. A 

candidate who runs in both the primary and general election may divide winding 

down expenses between his or her primary and general election committees using any 

reasonable allocation mediod. An allocation method is reasonable if it divides the 

total winding down costs between the primary and general election committees and 

results in no less tfaan one third of total winding down costs allocated to each 

committee. A candidate may demonstrate that an allocation metfaod is reasonable 

even if either the primary or die general election committee is allocated less than one 

diird of die total winding down costs. 11 CFR §9034.11 (c) 
G. Primary Winding Down Costs During the General Election Period. A primary 

election candidate who does not run in the general election may receive and use 

matching funds for these purposes eidier after he or she has notified the Commission 

in writing of his or her witfadrawal from tfae campaign for nomination or after tfae date 

of tfae party's nominating convention, if he or she has not wididrawn before the 

convention. A primary election candidate who runs in the general election, regardless 

of whedier the candidate receives public funds for the general election, must wait 

until 31 days after die general election before using any matching funds for winding 

down costs related to the primary election. No expenses incurred by a primary 

election candidate who mns in the general election prior to 31 days after the general 

election shall be considered primary winding down costs. 11 CFR §9034.11(d). 

Facts and Analysis 

A Facts 

The Candidate registered with the Commission on March 4,2008 and received his first 

matching funds payment on July 17,2(X)8. The Candidate's DOI was September 4, 

2008.^ After becoming ineligible due to die application of 11 CFR §9033.5(b), die 

Candidate continued to campaign in the general election. For purposes of determining 

NOCO, the Audit staff considered only winding down costs incurred after December 5. 

2008, tfae end of tfae general election expenditure report period, and 31 days after tfae 

general election. In accordance widi 11 CFR §9034.11(d), tiiat date begins die period in 

which NFP was eligible to use matching funds for winding down costs related to the 

primary election. Winding down costs were allocated between NFP (Primary 

Committee) and Nader for President 2008 General Committee (Nader General) using a 

70/30 ratio, respectively, as agreed upon between NFP and the Audit staff during audit 

fieldwork. The Audit staff reviewed NFP's financial activity through March 31,2011, 

analyzed estimated winding down costs and prepared the Statement of Net Outstanding 

Campaign Obligations that appears on the next page: 

* This was the last day ofthe last national convention held by a major party. 
Nader for President 2008 

Statement of Net Outstanding Campaign Obligations 

As of September 4,2008 

Prepared on March 31,2011 

Assets 

Cash-on-Hand 

Cash in Bank 

Accounts Receivable 

Capital Assets 

Inventory - Merchandise 

Total Assets 

Liabilities 

Accounts Payable for Qualified Campaign Expenses @ 

9/4/08 

Winding Down Costs (9/5/08 - 12/4/08) 

Actual Winding Down Costs (12/S/08 - 3/31/11) 

Estimated Winding Down Costs (4/1/11 - 6/30/11) 

Total Liabilities 

$ 893 [a] 

123.908 

8.921 

10.298 

500 

[b] 

$ 98.884 

-0-

115.785 

L310 [c] 

$144,520 

$219.979 

Net Outstanding Campaign Obligations (Deficit) as of September 4,2008 ^ ($75.459) 

Footnotes to NOCO Stateinent: 

[a] Amount includes contributions dated prior to DOI and deposited after DOI. 

[b] Winding down costs were not allowed during this period because a candidate running in the general election 

must wait until 31 days after the general election (12/5/08) before using any matching fimds for winding down 

costs related to the primary election, pursuant to 11 CFR §9034. i 1(d). 

[c] Estimated winding down costs will be compared to actual winding down costs and adjusted accordingly. 
Shown below are adjustments for funds received after September 4,2008, through 

December 31,2009, based on die most ciurent financial information available at the close 

of fieldwork: 

Net Outstanding Campaign Obligations (Deficit) as of 9/4/08 ($75,459) 

Private Contributions and Other Receipts Received 9/5/08 

through 10/3/08 

3,665 

Matching Funds Received on 10/3/08 127.959 

Federal Funds Received in Excess of Entitiement $56,165 

As presented above. NFP received matching funds totaling $56,165 in excess of tfae 

amount to wfaich the Candidate was entitled. 

The Audit staff prepared a Statement of Net Outstanding Campaign Obligations and 

provided it to NFP at the exit conference. In response, the NFP Counsel stated tfaat NFP 

takes issue widi the NOCO statement because of how die Commission currentiy 

interprets the winding down rules as applied to a candidate who receives primary 

matcfaing funds and goes on to tfae general election, but does not receive general election 

public funding. He noted tfaat tfae bright line cut-off rule regarding post-DOI 

expenditures, whicfa does not count primary expenditures from DOI tfarougfa tfae end of 

tfae general expenditure report period (December 5,2008), was unfair to a minor party 

candidate wfao received primary matching funds and who had to go through ballot access 

hurdles, even after the major parties held dieir nominating conventions. Counsel added 

that primary-related expenses incurred after DOI are disqualified solely according to 

when diey were incurred, whereas state-determined ballot access requirements for minor 

party candidates result in indisputably primary-related expenses, i.e. ballot access 

expenditures, being incurred after the nomination date of the last major party to hold its 

convention. 

NFP Counsel pointed out tfaat the Nader 2000 Primary Committee argued diis issue in its 

response to the Preliminary Audit Report, which the Commission rejected in part at the 

time. Counsel contended diat if the Commission were to reconsider its bright line rule, 

NFP could identify and submit documentation for expenses that should be considered 

primary expenses, incurred from September 5 dirou^ November 4. 

As noted in die Legal Standard section above, die Commission's regulations specify tfaat 

qualified campaign expenses must be incurred between tfae date tfae individual becomes a 

candidate and die last day of die candidate's eligibility under 11 CFR §9033.5. In Mr. 

Nader's case, he has been given die benefit of the longest possible primary period 

(26 U.S.C. 9036.2(6)). Therefore, expenses between September 5 and November 4,2008 

caimot be considered primary election expenses. 

Counsel also noted diat NFP followed 11 CFR 9034.11(d). and as a result, did not use 

primary matcfaing funds or private monies for any expenses incurred in the "general 

election" period dirough December 5. However, Counsel noted, "cleariy-identifiable 

primary winding down expenses were incurred during this period, especially after 

November 4 and through December 5." He stated diat even if NFP is not given credit for 

any primary expenses through November 4. it should be given credit for obvious winding 
10 

down expenses incurred November 5 tfarougfa December 5,2008. and tfaat tfae expenses 

related to die Commission's audit on NFP's premises from November 13 through 

December 9,2008, were undeniably primary winding down expenses. 

NFP calculated at least $88,137 in winding down expenses from November 5 through 

December 5.2008, which it believes should be considered legitimate winding down 

expenses. Apart from its request for the Commission to reconsider the bright line rule in 

NFP's situation, NFP proposed two solutions to adjust the NOCO: 

(1) Apply full credit in tfae amount of $88,137 for November 5 through December 5, 

2008 for expenses NFP can document as primary winding down expenses, due to the 

timing of tfae audit. At a minimum, 70 percent, or $61,696. should be allowed. 

(2) If the Commission does not accept die first proposal, all actual expenses from 

December 5 through termination should be credited on the NOCO 100 percent as primary 

expenses, as opposed to tfae 70/30 percent primary/general allocation. 

NFP Counsel stated diat based on 11 CFR 9004.11(c) [note: identical to 11 CFR 

9034.11(c)]. the Audit staff has the flexibility to allow a candidate who runs in both the 

primary and general to divide winding down expenses between the primary and general 

using any reasonable allocation method and there is nothing in 11 CFR 9034.11(d) that 

prohibits crediting NFP as having its general election winding down costs during the 

post-general election period witfain 31 days of tfae general election. He added tfaat the 

regulation solely refers to not using primary matching fimds for winding down costs 

related to the primary election. 

The Audit staff notes diat die Explanation and Justification for 11 CFR 9034.11(d) -

Candidates Who Run in Both Primary and General Elections states that: 

.. .a candidate who runs in tfae general election must wait until tfae day 

following die date 30 days after the general election before using matching 

funds for primary winding down costs, regardless of whether the candidate 

receives public funds for the general election. This rule clarifies tfaat no 

expenses incurred prior to 31 days after die general election by candidates 

who run in the general election may be considered primary winding down 

costs or paid with matching fiinds. 

The Explanation and Justification also notes die following: 

Although this revised rule may result in general election campaigns 

incurring a small amount of administrative costs related to terminating the 

primary campaign during the general election period, in practice, these 

expenses are offset by general election start up costs that are incurred and 

paid by the primary committee prior to the candidate's DOI. This 

approach is also consistent widi the Commission's bright line rules for 

allocating expenses between primary and general campaigns at 11 CFR 

9034.4(e), which allow some primary related expenses to be paid by die 

general election committee and vice versa. 
11 

Widi respect to the 70 percent primary 30 percent general election allocation ratio, it is 

already less than the suggested minimum ratio in the regulation and was the allocation 

agreed upon between NFP and die Audit staff during audit fieldwork. The ratio reflects 

diat the primary winding down effort was die major share of the activity, but also 

recognizes that there was a general election campaign that required attention at the same 

time. 

NFP Counsel's final point was that. .public policy sfaould not penalize a political 

committee through the application of die FEC's regulations for being extraordinarily 

efficient, for being prepared for immediate audit, for paying its bills in a timely fashion, 

and for being able to terminate quickly." Both NFP Counsel and die Audit staff agree 

tfaat applying die regulations as written to NFP's situation, allowing no primary winding 

down costs until December 6,2008, and considering all expenses incurred after 

September 4,2008, to be general election expenses, would produce tfae result shown on 

die NOCO presented above. 

B. Preliminary Audit Report and Audit Division Recommendation 

In die preliminary audit report (PAR), the Audit staff recommended that NFP provide 

evidence that it did not receive matching fund payments in excess of entitlement. Absent 

such evidence. Audit staff stated that it would recommend tfaat tfae Commission 

determine tfaat $62,698 is repayable to die U.S. Treasury. 

C. Committee Response to the Preliminary Audit Report 

In response to the PAR recommendation, NFP noted diat some adjustments were 

necessary for the winding down costs category on the NOCO. The Audit staff discussed 

these revisions witfa NFP representatives and made the necessary adjustments. In 

addition, the Audit staff updated die winding down costs total in the NOCO statement 

contained in the PAR by replacmg estimated costs with actual costs through March 31, 

2011, from subsequent reports filed with die Commission and by obtaining updated 

financial data from NFP. As a result, die NOCO deficit was revised from $68,926 to 

$75,459. This revision resulted in a reduction to the federal funds received in excess of 

entitiement figure from $62,698 to $56,165. 

NFP Counsel reiterated in his written response to the PAR that **[t]fae Commission sfaould 

not apply tfae 31-day rule, wfaich excludes clearly identiHed, primary-related winding 

down costs incurred by the Committee while the audit was being conducted." He stated 

diat he understands diat pursuant to 11 CFR 9034.11(d), die NOCO should not contain 

primary election winding down costs for the 31-day period after the general election, but 

proposed that the Commission should reconsider die "brigfat-line" rule in NFP's case. He 

added that of the $252,475 in expenses incurred during this period for bodi primary and 

general expenditures, all were paid widi general funds as required by the rule, but that 

$90,479 (36 percent) of this total were actually primary-related costs. 

NFP Counsel contended that the application of this mle resulted in punishing NFP for 

quickly and efficiently dealing with the Commission audit. He pointed out tfaat NFP 

provided preliminary records to the Audit staff in September 2008. and provided space 

for the Audit staff to conduct audit fieldwork between November 17,2008. and 
12 

December 9,2008. He added diat "[djuring both the general election period of 

September 4,2008 to November 4.2008 and die post general period from November 5, 

2008 to December 5,2008, the Committee incurred substantial expenses for primary 

election winding down compliance including office space, overhead, phones, fax and 

compliance related persoimel, counsel, and support staff expenses." Counsel stated that 

*'[i]t is because of the reality that such primary election winding costs are incurred by a 

general election candidate during die general election campaign that the Commission 

should revisit die rule prohibiting primary winding down expenses until 31 days after die 

general election. It makes littie policy sense to prohibit a general election candidate from 

promptly settling primary matters until 31 days a/rer die general election (italics in 

original); such practice merely delays the settlement of primary related issues." 

NFP Counsel noted diat as die Explanation and Justification for 11 CFR 9034.11(d) 

discussed by the Audit staff in the PAR indicates, the reason for the 31-day rule is twofold. First, a small amount of administrative costs related to terminatmg die primary 

campaign during the general election would be offset by general campaign start-up costs 

incurred by the primary committee. Second, die rule is consistent with other Commission 

bright-line rules for allocating expenses between the primary and general campaigns. He 

furtfaer stated diat neither of these applies to die NFP scenario because 36 percent of the 

total expenditures within die period caimot be characterized as de minimis administrative 

costs offset by general election start-up costs. And aldiough tfae costs . .may be de 

minimus in the context of a major party campaign diey represent a far larger and more 

burdensome proportion of an independent candidate's total campaign expenditures and 

the operation of the rule imposes a material hardsfaip on minor party or independent 

committees." 

NFP Counsel noted diat in October 2009, NFP submitted records in support of $90,479 in 

primary winding down expenses spent during the 31-day period after the general election 

and that if not given full credit for these costs, NFP should at least bc given 70 percent of 

this total as primary winduig down costs. He argued that these expenses were related to 

the audit fieldwork and should therefore be considered primary-related. If not, fae 

concluded tfaat. .the Committee could be put in the untenable position of having to raise 

funds to make a repayment for not being credited for expeditiously seeking to terminate." 

Anodier argument put fordi by NFP Counsel in response to the PAR is diat die rule on 

setting die DOI date as the last day of the last national convention held by a major party 

is unfair to minor party and independent candidates such as Mr. Nader who receive 

primary matching funds and run in tfae general election, but do not receive general 

election public funding. He agreed widi die DOI date of September 4,2008 but 

contended tfaat this date is unfair because state law imposes continuing ballot access 

hurdles that last beyond diat date. He cited as an example that seven states had ballot 

access deadlines of September 5,2008 or later and six more states had a deadline of 

September 2, 2008. He said it is unfau- that a committee such as NFP incurs primaryrelated ballot access expenses that tfae DOI rule disqualifies because die major parties' 

conventions are over. He noted diat NFP spent almost $4,000 on primary ballot access 

expenses between September 5 and November 4,2008. Counsel referred to Advisory 

Opinion 1995-45, whicfa treats ballot access expenditures as primary qualified 
13 

expenditures and he respectfully urges the Commission to establish a fairer DOI policy 

diat captures a larger percentage of such costs. 

NFP Counsel also contended diat primary-related expenses incurred after December 5, 

2008 should be credited 100 percent to tfae primary as opposed to die 70 percent primary 

expense allocation agreed upon by NFP and the Audit staff during audit fieldwork. He 

agreed diat for the entire campaign. NFP spent approximately 70 percent of its funds on 

the primary election, but diat the $90,479 spent on primary expenses diuring die 31-day 

period after die general election was allocated as general despite being spent on the 

primary because of die 31-day rule. He added diat if one applies 70 percent of die 

$301,593 spent by tfae primary and general committees combined from November 5, 

2008 forward, the amount allocable to die primary is $211.1 IS. NFP is credited only 

with $132,000 due to the DOI and 31-day mles, whicfa results in only 30 percent being 

applied for primary winding down costs. NFP Counsel further noted that in the Nader 

2000 Audit Report, all expenditures after June 1,2001 were credited 100 percent for die 

primary because the Commission audit began in August 2001 and that precedent should 

be carried forward to the 2008 situation by allowuig primary winding down expenses 

during November 2008. He added that any expenses incurred after December 5,2008 

should therefore be considered primary winding down costs based on such precedent. 

The Audit staff notes diat 11 CFR §9034.11(d) provides that a primary election candidate 

who nms in die general election, regardless of whether the candidate receives general 

funds for the general election, must wait until 31 days following the general election 

before using matching fiinds for winding down costs related to the primary election and 

no expenses incurred prior to 31 days after the general election shall be considered 

primary winding down costs. The fact tfaat tfae audit of tfae primary campaign began 

during the 31-day period has littie bearing on this issue because the majority of the 

$90,479 in costs incurred during this period would faave been incurred even if audit 

fieldwork had begun after December 5,2008. The Audit staff notes that 66 percent of tfae 

$90,479 went toward payroll-related costs and 17 percent towards headquarters rent. The 

determination of wfaen audit fieldwork is to begin is agreed upon between committee 

officials and tfae Audit staff. In tfais case, we agreed to begin fieldwork early after NFP 

officials requested an early start to enable members of tfae NFP staff to sfaut down their 

headquarters so tfaey could relocate to dieir respective faomes prior to tfae upcoming 

holidays. 

Bodi NFP officials and die Audit staff agree diat applying 26 U.S.C. §9032(6) to Mr. 

Nader's situation resulted in a September 4,2008 DOI. the last day of die 2008 

Republican convention, which was die second of the two major conventions held. We 

agree that NFP had ballot access expenses after die date tfaat would have been considered 

primary qualified expenses if they had been incurred prior to DOI. but that based on this 

provision; these costs are not allowed to be treated as primary expenses. 

The Audit staff notes that die treatment of primary winding down costs was applied 

consistentiy to die Commission audits of Mr. Nader in 2000,2004 and 2008. No primary 

winding down costs were allowed until 31 days after the general election in all tfaree 

cases. Tfae only difference is diat the audit fieldwork began within 30 days of tfae general 

election in 2008, rather than in the year following the election in the other election cycles. 
14 

If NFP can demonstrate a reasonable allocation method, pursuant to 11 CFR §9034.11(c), 

for winding down costs incurred after December 5,2008, that results in a faigfaer 

percentage dian tfae 70 percent primary allocation agreed upon during audit fieldwork, tfae 

Commission will consider allowing a larger winding down total for NFP. If die total 

primary winding down costs increase, tfaen adjustments would be made to tfae NOCO 

statement, wfaicfa would result in a corresponding decrease to tfae federal funds received 

in excess of entitiement, and tfae amount owed to tfae U.S. Treasury. For example, if an 

80 percent primary allocation is demonstrated by NFP, tfae NOCO balance would go from 

$75,459 to $92,000, resulting in a decrease of tfae amoimt owed to tfae U.S. Treasury from 

$56,165 to $39,625. Similarly, if a 90 percent primary allocation is demonstrated by 

NFP, die NOCO balance would be revised to $108,541, resultmg in $23,084 owed to tfae 

U.S. Treasury. 

Documentation sfaould be provided tfaat demonstrates a cfaange to tfae allocation 

percentages. Sucfa documentation could include a description of NFP activity after 

December 5,2008 related to primary winding down costs, an explanation of wfaicfa staff 

worked on primary winding down compared to tfaose wfao worked on tfae general winding 

down, and a list of winding down costs explaining wfay tfaey were related to tfae primary 

ratfaer dian die general. 

I Finding 2, Misstatement of Financial Activity 

Summary 

A comparison of NFP's reported figures witfa its bank records revealed diat from January 

4,2008 dirougfa August 31.2008, NFP overstated receipts by $17,106. understated 

disbursements by $74,599 and overstated ending casfa by $91,705. Tfae majority of the 

disbursements understatement was due to transfers NFP made to its General committee, 

that were not reported. The Audit staff recommended tfaat NFP amend its disclosure 

reports to correct tfae misstatements. In response to tfae PAR, NFP Counsel stated that 

clarifications with the Audit staff were made for some differences and that NFP filed 

amended reports, correcting tfae remaining misstatements. Tfae Audit staff notes tfaat NFP 

representative made some clarifications and tfaat NFP filed all requested amendments. 

Legal Standard 

Contents of Reports. Eacfa report must disclose: 

• tfae amount of casfa on hand at the beginning and end of the reporting period; 

• the total amount of receipts for the reporting period and for the calendar year; 

• the total amount of disbursements for tfae reporting period and for the calendar 

year; and 

• certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(l). (2). (3). (4) and (5) 
15 

Facts and Analysis 

A. Facts 

The Audit staff reconciled NFP's reported financial activity with its bank records and 

determined that diere was a misstatement of cash-on-hand, receipts and disbursements. 

The following chart outlines die discrepancies and succeeding paragraphs explain, to the 

extent possible, the reasons for the misstatements. 

2008 Activity 

Reported Bank Records Discrepancy 

Opening Cash Balance 

@ January 4, 2008 

$0 $0 $0 

Receipts $2,977,570 $2,960,464 $17,106 

Overstated 

Disbursements $2,587,452 $2,662,051 $74,599 

Understated 

Ending Cash Balance 

@ August 31.2008 

$390,118 $298,413 $91,705 

Overstated 

The overstatement of receipts resulted from the following: 

• Earmarked contributions double-coimted in 

receipts total 

• Over-reported receipts 

• In-kind contributions not reported on Schedules A 

• Unexplained difference 

Net Overstatement of Receipts 

The overstatement of disbursements resulted fi'om the following: 

• Unrepoited transfers to Nader General 

• Net reported bank debit adjustments, never adjusted 

(voided checks; contributions retumed for insufficient 

funds; stop payments; over/under reported items) 

• In-kind contributions not reported on Schedules B 

• Unexplained difference 

Net Understatement of Disbursements 

( 13.725) 

( 4.225) 

838 

6 

$(17.106^ 

101,391 

(22.213) 

251 

(4.830) 

$74.599 

The overstatement of ending cash-on-hand in the amount of $91,705 resulted from the 

misstatements described above. 

NFP did not report the majority of transfers of contributions in excess of the limitations it 

made to the Nader General committee, totaling $101,391. These transfers were mainly 

contributions to NFP by contributors who had exhausted their contribution limitation to 

NFP and the excessive portion of the contribution was properly redesignated to the Nader 

General. 
16 

B. Preliminary Audit Report & Audit Division Recommendation 

At the exit conference the Audit staff explained the misstatements and subsequentiy 

provided NFP representatives widi schedules detailing these discrepancies. In response, 

the NFP representatives agreed to amend NFP's reports. 

The Audit staff recommended that NFP: 

• amend its 2008 reports to correct tfae misstatements; and 

• amend tfae cash balance on its most recently filed report with an explanation tfaat 

it resulted from audit adjustments from a prior period. Audit staff further 

recommended tfaat NFP reconcile die cash balance on its most recent report to 

identify any subsequent discrepancies that may impact adjustments 

recommended. 

C. Committee Response to the Preliminary Audit Report 

In response to die preliminary audit report, NFP Counsel correctiy noted that 

clarifications with die Audit staff were made for some differences and NFP filed 

amended reports, correcting the remaining misstatements. In addition, NFP amended the 

cash balance on its most recentiy filed report with an explanation diat it resulted ftom 

audit adjustments from a prior period. 

I Finding 3. Disclosure of Loans 

Summary 

NFP secured a line of credit in die amount of $500,000 on June 25,2008, but did not file 

the required Scfaedule C-P-1, or a copy of tfae Ime of credit agreement, until November 

21,2008. after die Audit staff made NFP officials aware of diis omission. Tfae Audit 

staff recommended tfaat NFP provide any relevant comments it has on this issue. In 

response to the PAR, NFP Counsel stated that staff was unaware of die requirement to 

file a Schedule C-P-1 and a copy of the line of credit agreement, in addition to fdmg a 

Schedule C-P, and that as soon as it was made aware of diis omission, it filed die missing 

items. 

Legal Standard 

Loans. When a political committee obtains a loan from, or establishes a line of credit at, 

a lending institution as described in 11 CFR 100.82(a) duough (d) and 100.142(a) 

through (d), it shall disclose in the report covering die period when the loan was obtained, 

the following information on Schedule C-1 or C-P-1: 

(i) the date and amount of the loan or line of credit; 

(ii) the interest rate and repayment schedule of the loan, or of eacfa draw on tfae line 

of credit; 

(iii) tfae types and value of traditional collateral or otfaer sources of repayment that 

secure the loan or tfae line of credit, and if that security mterest is perfected;. 

(iv) an explanation of the basis upon whicfa tfae loan was made or tfae line of credit 

establisfaed, if not made on the basis of either traditional collateral or the other 
17 

sources of repayment described in 11 CFR 100.82(e)(1) and (2) and 

100.142(e)(1) and (2); and 

(v) a certification from the lending institution tfaat tfae borrower's responses to 

paragrapfas (d)(l)(i)-(iv) of diis section are accurate, to die best of tfae lending 

institution's knowledge; that the loan was made or the line of credit established 

on terms and conditions (including interest rate) no more favorable at the time 

than those imposed for similar extensions of credit to other borrowers of 

comparable credit worthiness; and that the lending institution is aware of the 

requirement that a loan or a line of credit must be made on a basis whicfa assures 

repayment and tfaat the lending institution has complied witfa Commission 

regulations at 11 CFR 100.82(a) dirough (d) and 100.142(a) dirough (d). 

llCFR§104.3(d)(l). 

In addition, a poUtical committee shall submit: (1) a copy of tfae loan or line of credit 

agreement, which describes the terms and conditions of the loan or line of credit when it 

files Schedule C-1 or C-P-1; and, (2) a Schedule C-1 or C-P-1 each time a draw is made 

on a line of credit. 11 CFR §104.3(d)(2) and (3) 

Facts and Analysis 

A. Facts 

NFP secured a line of credit totaling $500,000 on June 25,2008. Tfae loan agreement 

stipulated tfaat repayment was due by September 3,2008. A total of $300,000 was drawn 

against this line of credit, and disclosed on Schedules C-P, m amounts of: $200,000 on 

June 27.2008; $50,000 on July 10.2008; and, $50,000 on August 22,2008. NFP repaid 

the first two draws with interest on July 18,2008 and repaid the diird draw with interest 

on August 29,2008. 

B. Preliminary Audit Report & Audit Division Recommendation 

NFP filed Schedules C-P for each of the diree lines of credit draws but did not file the 

required Schedule C-P-1 or a copy of the line of credit agreement until November 21, 

2008, after the Audit staff made NFP officials aware of this omission. No further 

amendments will be necessary for the line of credit disclosure. 

The Audit staff recommended that NFP provide any relevant comments it had on this 

issue. 

C. Committee Response to the Preliminary Audit Report 

In response to the PAR, NFP Counsel stated that staff was unaware of the requirement to 

file a Schedule C-P-1 and a copy of the line of credit agreement in addition to filing a 

Schedule C-P and that as soon as it was made aware of diis omission NFP filed die 

missing items. Counsel added tfaat NFP took immediate corrective action to address this 

unintentional oversight. 
FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

June 13, 2011 

MEMORANDUM 

TO: Joseph F. StolU 

Assistant StaffDirector y 

FROM: Christopher Hughey 

Acting General Counsel 7 

Lawrence L. Calvert, Jr.y" ^ 

Associate General Coiug^k 'y ' 

Lorenzo Holloway — 

Assistant General Counsel 

For Public Finance and Audit Advice 

Delanie DeWitt Painter 

Attomey 

SUBJECT: Draft Final Audit Report om n Nader for President (LRA # 755) 

The Office ofthe General Counsel faas reviewed die Draft Final Audit Rqxirt ("DFAR") 

on Nader for President ("Committee"). We concur witfa tfae findings in tfae DFAR and have 

specific comments on Finding 1 (Net Outstanding Campaign Obligations) and the proposed 

repayment. If you faave any questions, please contact Delanie DeWitt Painter, the attomey 

assigned to this audit. 

The Proposed Report recommends that the Committee repay $56,165 to the United States 

Treasury for receiving funds in excess ofthe candidate's entidement. This repayment arises 

from the calculation of the candidate's remaining entitlement based on the Statement of Net 

Outstanding Campaign Obligations CNOCO Statement"). Generally, a conunittee's net 

outstanding campaign obligations are the difference between its assets and its liabilities, 

including winding down costs. 11 CF.R. § 9034.5(a) and (b)(2). 

In response to the Preliminaiy Audit Report ("PAR") the Committee makes three 

arguments why the Commission should increase its liabilities for primary winding down costs, 

thereby increasing the amount of matching funds to which it was entitied and, in tum, reducing 

or eliminating any amount it would be required to repay the Treasury for funds received in 

excess of tfae entitiement. These arguments are: I) winding down costs should include expenses 

during the 31 -day period between the general election and December 5,2008; 2) winding down 

costs should include clearly identifiable primary costs incurred after the candidate's date of 
Memorandum to Joseph F. Stoltz 

Nader for President Audit Report 

LRA # 7SS 

Page 2 

ineligibility ("DOI"); and 3) the ratio of primary to general winding down costs should be 

increased to 100% primary after December 5,2008.^ See PAR Response. We conclude that the 

Committee's first two arguments are not persuasive, but the third argument has more merit. The 

Commission could consider whether to increase the percentage of primary winding down 

expenses after December 5,2008 fiom 70% to a higher amount. Increasing the amount of the 

Committee's winding down expenses could increase tfae amount ofthe candidate's entitlement 

and eliminate the finding tfaat tfae candidate received federal funds in excess of fais entitlement 

and the consequent repayment. See 11 C.F.R. § 9038.2(bXl)(i). 

First, the Committee contends that $90,479 of its expenditures between November 5, 

2008 and December 5,2008 should be included as primary winding down costs. PAR Response 

at 2-6. The Committee acknowledges diat the "31 day rule" of 11 C.F.R. § 9034.11(d) does not 

permit a candidate who runs in the general election to use matcfaing fimds for primary winding 

down costs until 31 days after the general election. Id. at 4. But it contends that tfais mle should 

not exclude winding down costs obviously related to the primary election during tfais period, 

such as the expenses related to the Committee's compliance with the Commission audit. Id. at 4-

6. The Committee argues diat the 31 day rule "operated to punish the Committee for quickly and 

efficiently meeting its audit obligations," and that it incurred substantial primary winding down 

costs for compliance dirough December 5,2008. Id. at 4-6. The Committee states that these 

expenses were for office space, overhead, phones, fax, compliance personnel, counsel and 

support staff. Id. It states that the auditors were on the Committee's premises between 

November 14,2008 and December 9,2008, and that it provided documents to the auditors in 

September 2008.^ Id. The Committee asserts that it makes little policy sense to profaibit a 

general election candidate fi-om winding down primary election matters until 31 days after tfae 

general election. Id. at 5. It also argues tfaat tfae rationale for establisfaing tfae 31 day bright line 

rule does not apply here, because its winding down costs were more than a de minimis 

administrative cost, and that tfae result is unfair and burdensome. Id. 

Tfae Committee's arguments amount to a request tfaat tfae Commission ignore the plain 

language of its own regulation. The regulation clearly states diat candidates who run in the 

general election "must wait until 31 days after the general election before using any matching 

fimds" for primary winding down costs and no expenses incurred '*prior to 31 days after tfae 

general election sfaall be considered primary winding down costs." 11 C.F.R. § 9034.11(d). This 

provision applies "regardless of whedier the candidates receive public fimds for the general 

election." Id. Because Ralph Nader ran in tfae general election, tfae Committee could not incur 

any primary winding down expenses before December 5,2008. There is no exception to this 

rule that would allow the Committee to demonstrate tfaat any expenses during tfais period, even 

diose associated witfa tfae Commission's audit, were primary winding down costs. There is no 

basis for the Commission to ignore its own regulation and create an exception for tfae Committee. 

' The Committee's fourth argument concerned calculation errors. We understand diat the auditors have 

corrected and updated the amount of winding down costs and the Committee and the auditors agree on the figures 

that relate to these calculation errors. 

' The DFAR states that the auditors agreed to start audh fieldwork early at the Commitiee's request to allow 

Committee staff to shut down the headquarters and retum to their homes for the holidays. 
Memorandum to Joseph F. Stoltz 

Nader for President Audit Report 

LRA n 755 

Page 3 

In addition, the Committee's argument ignores the purpose of the regulation. In 

promulgating this regulation, the Commission acknowledged diat the 31 day mle "may result in 

general election campaigns incurring a small amount of administrative costs related to 

terminating the primary campaign during die general election period," but determined that "in 

practice, these expenses are offset by general election start up costs that are incurred and paid by 

tfae primary committee prior to die candidate's DOI."^ Explanation and Justification for 11 

CF.R. 9034.11(d). 68 Fed. Reg. 47,410 (Aug. 8,2003). 

Moreover, die 31 day mle at 11 C.F.R. § 9034.11(d) is a "bright line" rule that divides 

expenses based on a date rather than considering each particular expense. Bright line rules 

improve administrative efficiency, conserve resources and avoid prolonged disputes over the 

allocation of specific expenses. The Commission made a number of changes to the winding 

down costs mles for both primary and general candidates in die 2003 mlemaking to avoid fiiture 

disputes over winding down costs like die disputes that had lengthened previous audit and 

repayment processes. See Explanation and Justification for 11 CF.R. § 9004.11,68 Fed. Reg. 

47,390-391 (Aug. 8,2003). 

We acknowledge diat as a practical matter, it is likely that the Commitiee incurred some 

expenses between November 5,2008 and December 5,2008 that it would not have incurred until 

later (or at all) but for the unusually early audit fieldwork. But even if the Commission 

determined not to apply the regulation in tfais instance, tfae documentation provided by die 

Committee to date does not provide a basis for distinguishing between those expenses and 

others, such as rent or utilities, whicfa it likely would faave incurred in any event. For example, 

tfae Committee lists payroll for individual Committee staff as primary winding down without 

explanation of what the staff did related to the audit fieldwork. These are precisely the type of 

disputes over the nature of specific expenses that the bright line mle of 11 CF.R. § 9034.11(d) 

was intended to prevent. Nevertheless, the Committee will faave anotfaer opportunity to submit 

supporting documentation if it decides to seek administrative review ofthe repayment 

determination. 

The Committee's second argument is diat basing the candidate's DOI on tfae date of the 

last major party convention is unfair because it does not recognize that independent and minor 

party candidates incur primary-related state ballot access expenses after the date of the last major 

party convention. PAR Response at 3,6-7. The Conunittee argues that ballot access is 

equivalent to the primary for independent candidates, and that the Commission has recognized 

ballot access as a primaiy expense for non-major party candidates, citing AO 1995-45 (Hagelin). 

It asserts that state laws impose ballot access petition deadlines well after the last date of a major 

party nominating convention, and notes that in 2008, seven states had ballot access deadlines 

after the candidate's September 4,2008 DOI. Id. at 6-7. Tfae Committee contends that after die 

candidate's DOI, it spent at least $3,905 for primary-related ballot access expenses, but had to 

pay for them as general election expenses. Id. at 7. 

' The Conunission explained that diis rule is consistent with the Commission's bright line rules at 11 CF.R. 

§ 9034.4(e) for allocating expenses between primary and general campaigns, which allow some primary expenses to 

be paid by the general committee and vice versa. Id. 
Memorandum to Joseph F. Stoltz 

Nader for President Audit Report 

LRA » 755 

Page 4 

Here, the Committee asks the Commission to ignore not merely its own regulations, but 

the statute. The Commission cannot change the candidate's date of ineligibility because it is 

based on the end of die matching payment period, wfaicfa is defined by the statute and 

regulations. See 26 U.S.C § 9032(6); see also 11 C.F.R. § 9032.6(b)(2), 9033.5(c). The latest 

date for the end of the matching payment period for candidates who are not nominated at a 

national convention is the last day of the last national convention held by a major party during 

the calendar year. 26 U.S.C. § 9032(6); 11 C.F.R. § 9032.6(b)(2). Thus, the latest possible date 

for the candidate's DOI was the last day of the last national convention held by a major party in 

2008, September 4,2008. See 11 C.F.R. § 9032.6(b)(2), 9033.5(c). 

Moreover, while the Committee is correct diat the Commission has considered state 

ballot access expenses for non-major party candidates to be primary-related qualified campaign 

expenses, those expenses must be incurred before tfae candidate's DOI. See AO 1995-45 

(Hagelin) (Ballot access expenses for candidate and party incurred prior to DOI were qualified 

campaign expenses.) To the extent that the Committee incurred ballot access expenses after the 

candidate's DOI that would otherwise be primary-related, those expenses are not qualified 

campaign expenses but are considered general election expenses that cannot be paid with 

matching fiinds. More to the point, we understand tfaat the amount of ballot access expenses 

incurred after the candidate's DOI is minimal, and would have littie impact on tfae calculation of 

the candidate's entidement or the repayment. The Committee argues that it spent S3,905 for 

primary-related ballot access expenses after DOI, only a small part of the amount in excess of die 

candidate's entitiement. Most of the Committee's state ballot access expenses were incurred 

prior to the candidate's DOI and are already included as liabilities in die NOCO Statement. 

The Committee's third argument is that the Commission sfaould change the 70/30% 

winding down cost ratio between the primary and general campaigns to 100/0% after 

December 5,2008 because of the timing of die Commission's audit of tfae Committee. PAR 

Response at 3,7-9. The Committee argues that the regulations allow flexibility in determining a 

reasonable allocation and that 11 C.F.R. § 9034.11(c) does not prohibit crediting the Committee 

for expending general fiinds during die 31 day period after the general election to pay for 

primary winding down costs. Id. at 8. The Committee argues that it spent more than 2/3 of its 

total expenditures on the primary election and allowing a 100% allocation would help to address 

the imbalance caused by the 31-day and DOI rules. Id. They note that there is precedent for 

allowing a 100% allocation in the Nader 2000 audit report. Id. Finally, they state that the 

Committee's "early cooperation to make an expeditious audit in November 2008 should not 

operate to deprive it of proper credit for primary winding down expenses." Id. at 9. 

We recommend that the auditora raise for tfae Commission's consideration tfae possibility 

of increasing the percentage of tfae Committee's primary winding down expenses after 

December 5,2008 from 70% to a faigfaer amount. Unlike tfae Committee's otfaer two arguments, 

raising the primary winding down percentage would not contradict the express language of tfae 

Commission's regulations. 

The regulations allow some flexibility in dividing winding down costs between a 

candidate's primary and general campaigns. A candidate who runs in botfa tfae primary and 
Memorandum to Joseph F. Stoltz 

Nader for President Audit Report 

LRA #755 

Page 5 

general election may divide winding down costs between his primary and general committees 

"using any reasonable allocation mediod." 11 CF.R. § 9034.11(c), see 11 C.F.R. § 9004.11(c). 

An allocation method is presumptively reasonable if it divides tfae total winding down costs 

between the primary and general election committees and resuhs in no less than one tfaird of the 

total winding down costs allocated to each committee. Id. However, a candidate "may 

demonstrate that an allocation method is reasonable even if either committee is allocated less 

than one third of the total winding down costs." Id The Commission explained that if particular 

circumstances require a candidate to allocate less than one third of the total costs to one 

committee, the committee "will be required to demonstrate that their allocation method was 

reasonable." Explanation and Justification for 11 C.F.R. § 9004.11,68 Fed. Reg. 47,392 

(Aug. 8,2003). The Commission fiirther explained that this role gives candidates "flexibility to 

allocate their winding down expenses based on the particular circumstances of their campaigns;" 

for example, candidates "who do not receive public funds for the general election might 

concentrate winding down activity on their publicly fiinded primary committee" or committees 

might focus winding down efforts on the committee diat must deal with more complex issues or 

larger potential repayments in the audit and repayment process. Id. at 47,393. 

The Commission could consider whether to increase the percentage of primary winding 

down expenses after December 5,2008. We note that die 70% primary allocation is already 

slightly higher than 2/3 of the total winding down costs. The percentage could be fiirther 

increased if the Commission concludes that the Committee has demonstrated that the faigfaer 

allocation is reasonable. 11 C.F.R. § 9034.11(d). The Commission has previously allocated 

100% of expenses to a primary committee after the date when the general committee's winding 

down process is completed. See Audit Report of Nader 2000 Primary, Inc. at 11 (100% of 

winding down expenses after June 1,2001 were attributed to the primary committee because tfae 

general committee's wind down process was completed) (approved Nov. 14,2002, prior to the 

promulgation of 11 CF.R. § 9034.11(c)). Because the Committee faas not demonstrated that die 

general election wind down was completed by December 5,2008, a 100% primary allocation 

may not be appropriate on tfaat date. Instead, the Commission could apply a higher primary 

winding down percentage than 70% but less than 100% for the period after December 5,2008. 

The DFAR includes calculations of potential decreased repayment amounts if the Commission 

increases the percentage to 80% or 90%. 

Conversely, the Commission might conclude that the Committee has not adequately 

demonstrated diat a higher percentage allocation is reasonable. The Conimittee has not provided 

documentation explaining what amount of its activity and expenses after December 5,2008 was 

related to primary winding down as opposed to general election winding down. Such 

documentation could include a description of Committee activity during this period related to the 

primary wind down, an explanation of which staff worked on primary winding down compared 

to those who worked on the general wind down and a list of winding down expenses explaining 

why they were related to the primary rather than the general. We suggest that the DFAR list 

types of documentation that the Committee could provide to demonstrate that a higher 

percentage allocation would be reasonable. 
CASE INDEX FORM 

CASE NO. & NABOS: 

STAFF ASSIGNED: 

TELEPHONE: 

08-0007; Nader for Preaident 2008 

Bflarty Favin, Audit Bfanager 

Sheraline Tfaomaa, Lead Auditor 

Audit - 202-694-1200 

DATE 

Januaiy 5, 2009 

December 8, 2009 

Bflarch 31, 2010 

September 1, 2010 

June 22. 2011 

July 11. 2011 

DOCUBgENT 

Committee's Response to the Fieldwork Exit 

Conference (Narrative Portion) 

Legal Analsrais of Preliminaiy Audit Report (PAR) 

PAR to Coinmission 

Committee's Response to PAR 

Draft Final Audit Report (DFAR) and Legal Analysis of 

DFAR Sent to Committee 

Committee's Response to the DFAR 

The above documents can be viewed in the Voting Ballot Biattera folder. If you 

have any questions, please contact Blarty Favin at 694-1189. 
Sheraline Thomas /FECAJS 

07/25/2011 12:00 PM 

To Martin Favln/FEC/US@FEC 

cc 

boc 

Subject Fw: Nader NOCO/WD estimates (per Nell) 

7/2.5>/// 

Thanks, 

Sheraline L Thomas 

Audit Division 

Federal Election Commission 

202-694-1184 (Phone) 

202-219-3483 (Fax) 

Fonvarded by Sheraline Thomas/FEC/US on 07/25/2011 11:59 AM — 

Nell Crossan 

<nell@nellcrossan.com> To Sheraline Thomas <shthomas@fec.gov> 

07/25/2011 11:52 AM cc 

Subject Fwd: Sheraline email 

Sheraline: 

Attached to this email is an excel spread sheet which breaks down our estimated 

remaining expenses (see tab "Est"). It assumes tfae campaign will close down in 

Sept/October of 2011. Hopefidly we'll faave die FAR m tfae next couple of weeks so we 

can write tfae refimd check and seek to terminate. 

I also included a tab called "NOCO" which gives an updated refimd calculation 

assummg tfae FEC agrees to our new allocation metfaod of 95% for all expenses after 

1/1/09. Please take a look at tfaat and let me know if you disagree witfa any of my 

calculations. 

Tfaanks agam for all your faelp witfa gettuig us ever closer to winding down Nader '08. 

Neil 

Nader OB Estimated Tennination Costs 063)11.xls 
7/9.5/// 

NADER FOR PRESIDENT 2008 

Eatimated Wind Down Expenes from 6/3V11 until Termination 

Nathan Coppemoll - Legal 1,000.00 

Matt Zawisky - Records Manger 2,000.00 

Nell Crossan • Rnance 600.00 

Bruce Afran - Legal 975.00 

Complete Campaigns - Software (4 Months) 1,000.00 

Gossamer Threads - Hosting (4 Months) 300.00 

Storage - (3 Years) 3,372.75 

TOTAL ESTIMATED WIND DOWN 9.247.75 
7/2-5/// 

NADER FOR PRESIDENT 2008 

A/P 

Actual Wind Down 

12/S-12/31/08 Expenses 

1/1/09-&3Q/2011 Expenses 

Estimate Wind Down 

NOCO 

Late Contributions 

10/3/08 Matching Funds Pmt 

TOTAL ALLOCATION 

70% 

95% 

65.625.20 

100,906.94 

45,937.64 

95,861.60 

95% 

166,532.14 

9.247.75 

141.799.24 

144.520.00 

98.884.00 

141.799.24 

8.785.36 

(104.948.60) 

3.665.00 

127,959.00 

Amount Due to the FEC 26,675.40 
ShoFBllne Thomas /FECAJS 

07/27/2011 08:15 AM 

To Martin Favln/FECAJS@FEC 

cc 

boc 

Subject Fwinade 

7/^ 6/// 

Thanks, 

Sheraline L Thomas 

Audit Division 

Federal Election Commission 

202-694-1184 (Phone) 

202-219-3483 (Fax) 

FonwanJed by Sheraline Thomas/FEC/US on 07/27/2011 08:15 AM 

neli@nellcrossan .com 

07/26/2011 10:05 AM 

Piease respond to 

neil@neiicrossan .com 

To Sheraline Thomas <8hthomas@fec.gov> 

cc 

Subject Fw:nade 

Sfaeraline, 

We just got our bill for tfae storage and tfaey gave a nice discoimt from an earlier quote. See 

attached. 

Neil 

— On Mon, 7/25/11, Crossan, Neil <NeiLCrossan@schwab.com> wrote: 

From: Crossan, Neil <Neil.Crossan@scfawab.com> 

Subject: nade 

To: neil@neilciossan.com 

Date: Monday, July 25,2011,4:59 PM 

Nell Crossan 

Senior Accounting Manager 

Schwab Bank 

Charies Schwab & Co., Inc. 

211 Main Street 

San Francisco, CA 94105 

Mailstop: SF211MN-07-106 

Phone: 415.667.0327 

Fax: 415.667.9088 

Please consider the environment before printing this e-mail 

Nader 08 Estimated Termination Costs 063011 .ids 
NADER FOR PRESIDENT 2008 

Estimated Wind Down Expenes frem 6/30/11 until Tennination 

Nathan Coppemoll - Legal 1,000.00 

Matt Zawlsl^ - Records Manger 2,000.00 

Neil Crossan - Rnance 600.00 

Bruce Afran - Legal 975.00 

Complete Campaigns - Software (4 Months) 1,000.00 

Gossamer Threads - Hosting (4 Months) 300.00 

Storage - (3 Years) 2.698.20 

TOTAL ESTIMATED WIND DOWN 8.573.20 
NADER FOR PRESIDENT 2008 

/VP 

Actual Wind Down 

12/5-12/31/08 E)9)enses 

1/1/09-6/30/2011 Expenses 

Estimate Wind Down 

NOCO 

Late Contributions 

1(^3/08 Matching Funds Pmt 

70% 

95% 

95% 

TOTAL ALLOCATION 

65,625.20 

100.906.94 

45,937.64 

95.861.60 

166.532.14 

8.573.20 

141,799.24 

144.520.00 

98.884.00 

141.799.24 

8.144.54 

(104.307.78) 

3,665.00 

127,959.00 

7/516/// 

Amount Due to the FEC 27,316.22