Final Audit Report of the 

Commission on 

John Edwards for President 

January 3, 2007 - March 31, 2008 

Why the Audit 

Was Done 

Federal law requires the 

Conunission to audit 

every political committee 

established by a candidate 

who receives public fimds 

for the primary 

campaign.^ liie audit 

determmes whether the 

candidate was entitled to 

all of the matching funds 

received, whether the 

campaign used the 

matching fimds in 

accordance with the law, 

whether the candidate is 

entitled to additional 

matching fimds, and 

whether the campaign 

otherwise complied with 

the limitations, 

prohibitions, and 

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 m this 

report. 

Ahout the Campaign (p. 2) 

John Edwards for President is the principal campaign committee 

for John Edwards, a candidate for the Democratic Party's 

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

Committee is headquartered in Chapel Hill, North Carolina. For 

more information, see the chart on the Campaign Organization, 

p.2. 

Financial Activity (p. 3) 

• Receipts 

o Contributions From Individuals 

o Matching Funds Received 

o Bank Loan 

o Offsets to Expenditures 

o Other Receipts 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Contribution Refunds 

o Loan Repayments and Other 

Disbursements 

Total Disbursements 

$39,643,966 

7,404,083 

8,974,714 

967,088 

129,527 

$57,119^78 

$44,405,156 

3,720,268 

7,383,067 

$55,508,491 

Commission Findings (p. 4) 

• Matching Funds Received in Excess of Entitiement 

(Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

• Failure to Itemize Loan Repayments (Findmg 3) 

• Stale-Dated Checks (Finding 4) 

26 US.C §9038(a). 
Final Audit Report of the 

Cominission on 

John Edwards for President 

January 3, 2007 - March 31, 2008 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Audit Hearing 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 3 

Part III. Summaries 

Commission Findmgs 4 

Summary of Amounts Owed to the U.S. Treasury 5 

Part IV. Commission Findings 

Finding 1. Matching Funds Received in Excess of Entitlement 6 

Finding 2. Misstatement of Financial Activity 20 

Fmding 3. Failure to Itemize Loan Repayments 22 

Finding 4. Stale-Dated Checks 23 
Parti 

Background 

Authority for Audit 

This report is based on an audit of John Edwards for President (JEFP), undertaken by the 

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

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

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

audit of the qualified campaign expenses of every candidate and his authorized 

committees who received payments under section 9037." Also, Section 9039(b) of the 

United States Code and Section 9038.1(a)(2) of the Conunission's Regulations state that 

the Commission may conduct other exammations 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 recordkeepmg 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. Other 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. JEFP's records were substantially complete and the fieldwork began 

immediately. 

Audit Hearing 

JEFP declined the opportimity for an audit hearing. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration January 5,2007 

• Eligibility Period October 31,2007 - January 30,2008^ 

• Audit Coverage January 3,2007 - March 31,2008^ 

Headquarters Chapel Hill, Nortii Carolina 

Bank Information 

• Bank Depositories Three 

• Bank Accounts 17 Checking, 2 Investment 

Treasurer 

• Treasurer When Audit Was Conducted Julius L. Chambers 

• Treasurer Durmg Period Covered by 

Audit 

Julius L. Chambers 

Management Information 

• Attended FEC Campaign Finance 

Seminar 

Yes 

• Who Handled Accountuig and 

Recordkeeping Tasks 

Paid Staff 

^ The period during which the candidate was eligible for matching funds began on the date of certification 

of his matching fund eligibility and ended on tiie date the candidate announced his withdrawal from tiie 

campaign. See 11 CFR §9033. 

^ Limited reviews of receipts and expenditures were performed after March 31,2008, to determine whether 

the candidate was eligible to receive additional matching funds. 
Overview of Financial Activity 

(Audited Amounts) 

Cash on hand @ January 3,2007 $0 

o Contributions From Individuals 39,643,966 

o Matching Funds Received 7,404,083^ 

o Bank Loan 8,974,714 

o Offset to Expenditures 967,088 

o Other Receipts 129,527 

Total Receipts $57,119,378 

o Operating Expenditures 44,405,156 

o Contribution Refunds 3,720,268 

o Loan Repayments and Other Disbursements 7,383,067 

Total Disbursements $55,508,491 

Cash on hand @ March 31,2008 $ 1,610,887 

^ JEFP received an additional $5,478,795 in matching funds after March 31,2008 for a total of 

$12,882,878. This represents 61 percent of tiie maximum entitiement ($21,025,000) a Presidential 

candidate could have received in die 2008 cycle. 
Part III 

Summaries 

Commission Findings 

Finding 1. Matching Funds Received in Excess of 

Entitlement 

A review of JEFP's fmancial activity through December 31,2008, and estimated winding 

down costs indicated that it received matching fimds totaling $2,136,507, in excess ofthe 

Candidate's entitlement. JEFP's Statement of Net Outstanding Campaign Obligations 

(NOCO) understated its cash-on-hand, overstated its accounts payable and winding down 

expenses. In response. Counsel for JEFP (Counsel) stated that the payroll of February 7, 

2008, represents a qualified campaign expense that should be mcluded in the NOCO. 

Counsel also stated JEFP's overall objection to the repayment of matching funds. 

The Commission approved this finding. (For more detail, see p. 6.) 

Finding 2. Misstatement of Financial Activity 

A comparison of JEFP's reported financial activity to its bank records revealed a material 

misstatement of reported cash-on-hand ui calendar year 2007 through March 31,2008. 

JEFP understated its December 31,2007, cash-on-hand balance by $585,814 and 

understated its March 31,2008, cash-on-hand balance by $468,676. JEFP materially 

complied with the Audit staffs recommendation and amended its most recentiy filed 

report to correct the cash-on-hand balance. 

The Conunission approved this findmg. (For more detail, see p. 20.) 

Finding 3. Failure to Itemize Loan Repayments 

During audit fieldwork, the Audit staff identified loan repayments, totaling $4,344,469, 

that were not itemized. Although JEFP reported the amoimts on the Detail Summary 

Pages and itemized them on Schedule C (Loans) and Schedule C-1 (Loans and Lmes of 

Credit From Lendmg Institutions), it did not itemize them on Schedule B-P (Itemized 

Disbursements). JEFP complied with tiie Audit staffs reconunendation and amended its 

reports to itemize the loan repayments. 

The Commission approved this finding. (For more detail, see p. 22.) 
Finding 4. Stale-Dated Checks 

The Audit staff identified 202 stale-dated checks, totaling $267,529, and recommended 

that JEFP provide evidence that the checks are not outstanding or make a payment to the 

United States Treasury. In response, JEFP documented tiiat certain checks were no 

longer stale-dated as they either had cleared the bank or were for amounts that were 

determined to be not owed. As a result, the remaining 128 stale-dated checks, totaling 

$141,808, requure repayment to the United States Treasury. 

The Commission approved this finding. (For more detail, see p. 23.) 

Summary of Amoimts Owed to the United 

States Treasury 

• Findmg 1 Matching Funds Received in Excess $2,136,507 

of Entitlement 

• Fmding 4 Stale-Dated Checks 141,808 

Total Due U.S. Treasury $ 2,278,315 
Part IV 

Commission Findings 

Finding 1. Matching Funds Received in Excess of 

Entitlement 

Summary 

A review of JEFP's financial activity through December 31,2008, and estimated wmdmg 

down costs indicated that it received matching fimds totaling $2,136,507, in excess of tiie 

Candidate's entitlement. JEFP's Statement of Net Outstanding Campaign Obligations 

(NOCO) understated its cash-on-hand, overstated its accounts payable and wmdmg down 

expenses. In response. Counsel for JEFP (Counsel) stated that the payroll of February 7, 

2008, represents a qualified campaign expense that should be included m the NOCO. 

Counsel also stated JEFP's overall objection to the repayment of matching funds. 

The Commission approved this finding. 

Legal Standard 

A. Net Outstanding Campaign Obligations. Within 15 days after the candidate's date 

of ineligibility (see definition below), the candidate must submit a statement of "net 

outstanding campaign obligations." This statement must contain, among otiier tilings: 

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

committee and capital assets listed at their fau: market value; 

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

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

B. Date of Ineligibility. The date of meligibility is whichever of the following dates 

occurs first: 

• the day on which the candidate ceases to be active in more than one state; 

• the 30th day followmg the second consecutive primary in which the candidate 

receives less than 10 percent of the popular vote; 

• the end of the matching payment period, which 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, the last day of the last national convention held by a major party ui 

tiie calendar year. 11 CFR §§9032.6 and 9033.5. 
C. Qualifled Campaign Expense. Each of the following expenses is a qualified 

campaign expense. 

• An expense that is: 

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

period beginning on the day the mdividual becomes a candidate and 

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

§9033.5; 

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

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

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

• 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(a)(2). 

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

activity. 11 CFR §9034.4(a)(3). 

• Monetary bonuses paid after the date of meligibility for committee employees and 

consultants, provided that they are paid in recognition of campaign related 

activities or services; pursuant to a written contract made before the date of 

meligibility; and, no later than 30 days after the date of meligibility. 

11 CFR §9034.4(a)(5). 

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. A candidate may claim a lower fair 

market value for a capital asset by listing the asset on the NOCO statement separately and 

demonstrating, through 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, a candidate has net outstanding campaign obligations as defmed under 11 

CFR §9034.5, that candidate may continue to receive matching payments provided that 

he or she still has net outstandmg campaign debts on the day the matching payment is 

made. 11 CFR §9034.1(b). 

F. Winding Down Limitation. The total amount of wmding down costs that may be 

paid for, in whole or part, with matchmg fimds shall not exceed the lesser of: 

• 10 percent of the overall expenditures limitation pursuant to 11 CFR 9035.1: or 

• 10 percent of the total of: 

o The candidate's expenditures subject to the over expenditure limitation as of 

the candidate's date of ineligibility; plus 

o The candidate's expenses exempt from the expenditure limitations as of the 

candidate's date of ineligibility. 11 CFR §9034.11(b)(1) and (2). 
Facts and Analysis 

A. Facts 

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

January 30,2008, tiie Candidate's date of ineligibility (DOI). The Audit staff presented 

the audited statement that appears on the next page in the Preliminary Audit Report. This 

statement was based on the review of JEFP's flnancial activity through December 31, 

2008 and included estimates for winding down costs thereafter. The Audit staff and 

JEFP agreed on all NOCO components except for accounts payable for qualified 

campaign expenses. 
John Edwards for President 

Statement of Net Outstanding Campaign Obligations 

As of January 30,2008 

Prepared thru April 30,2010 

Assets 

Primary Election Cash-in-Bank 

General Election Cash-in-Bank 

Accounts Receivable 

Capital Assets 

Total Assets 

Liabilities 

Primary Election Accounts Payable for Qualified 

Campaign Expenses @ 1/30/08 

Refund of General Election Contributions 

Loan Payable @ 1/30/08 

Actual Winding Down Costs (1/31/08 - 4/30/10) 

Estimated Winding Down Costs (5/1/10 -12/31/11) 

Payable to U.S. Treasury - Stale-Dated Checks 

Total Liabilities 

$3,971,887 

3,321,290 

455.789 

29.134 

$2,313,509 

3.321.290 

8.974.713 

2.584,568 

1,423,060 

72.583 

[a] 

$7,778,100 

$18,689,723 

Net Outstanding Campaign Obligations (Deficit) as of January 30,2008 ($10.911,623) 

Footnote to NOCO Statement: 

[a] Estimated winding down costs will be compared to actual winding down costs and adjusted accordingly. 

Shown below are adjustments for fimds received after January 30,2008 and through July 

17,2008. 

Net Outstanding Campaign Obligations (Deficit) as of 1/30/08 

Private Contributions Received 1/31/08 tiuough 7/16/08 

Inteiest hicome Received 1/31/08 tiirough 7/16/08 

Matching Funds Received 1/31/08 tiuough 7/16/08 

Remaining entitiement as of 7/16/08 

Matching Funds Received 7/17/08 

Amount Received in Excess of Matching Fund Entitlement 

($ 10,911,623) 

358,983 

22,110 

8,825,425 

($ 1,705,105) 

4,057,453 

$ 2,352,348 
10 

As a result, in the Prelimmary Audit Report, the Audit staff concluded that JEFP was not 

entitied to $2,352,348 oftiie matching fimd payment ($4,057,453) it received on July 17, 

2008. 

1. Cash-In-Bank 

The primary difference between the NOCO presented on the previous page and those 

prepared by JEFP is the cash-in-bank balance. JEFP understated cash by $4.5 

million. Most of the understatement of cash represented funds received for the 

general election duruig the primary election period. The understatement of assets 

caused the NOCO statements to show a larger deficit and matching fimd entitlement 

than was the case. The Audit staff and JEFP agree on the cash balances presented in 

tiie NOCO statement. 

2. Accounts Payable for Qualified Campaign Expenses - Payroll 

Even though JEFP's accounts payable figure on its NOCO was not accurate, the 

Audit staff and JEFP now agree on the amount of accounts payable, except for the 

February 7,2008 payroll. The Audit staffs calculation of accounts payable on the 

NOCO statement does not mclude $556,871 m payroll paid on February 7,2008. 

Absent fiuther documentation, $556,871 is considered to be a monetary bonus paid to 

99 employees. As noted in the legal standards, in order to be a qualified campaign 

expense, monetary bonuses paid after DOI to employees m recognition of campaignrelated activities or services must be paid no later than 30 days after DOI and 

provided for pursuant to a written contract made prior to DOI (11 CFR 

§9034.4(a)(5)). JEFP representatives confirmed that there were no written contracts. 

JEFP paid staff twice monthly from mception through January 30,2008. In January 

2008, the payroll periods ended on January 15,2008 and January 30,2008. On 

January 31,2008, another pay period concluded. This payroll totaled $761,193 and 

was paid on February 7,2008. The amount, in effect, tripled each employee's pay for 

the month of January. Throughout the audit fieldwork, the Audit staff made 

numerous requests for an explanation and documentation of this payroll. 

B. Preliminary Audit Report & Audit Division Recommendation 

1. First Exit Conference 

This matter was presented to JEFP at the exit conference held on February 3,2009. 

The Audit staff provided its NOCO and workpapers supporting all NOCO 

components. 

Prior to the exit conference, the Assistant Treasurer responded that the purpose of the 

February 7,2008 payroll was to reimburse employees who had not been paid their 

entire salary due to limited fimds available beginnmg sometime in August 2007. 

Although requested, JEFP provided no specific details to explain how this payroll 

was calculated or what employees were not paid theu: full salary. At the exit 

conference, the Audit staff made the Assistant Treasurer aware that documentation 

supporting this payroll had not been made available. 
11 

During the exit conference response period, the Audit staff analyzed JEFP's payroll 

for the period August 2007 through January 2008. The review indicated that JEFP's 

explanation was incorrect. Employees were paid in full from August 2007 tiirough 

January 15,2008. However, during the following pay period, which ended January 

30,2008, employees received half of their normal net pay.^ Therefore, the Audit staff 

considered that portion of the February 7,2008 payroll necessary to make up the 

difference in net pay plus associated employee/employer payroll taxes ($204,322) to 

be a qualified campaign expense and included the amount on the NOCO in accounts 

payable. The Audit staff considered the remainmg portion of the February 7,2008 

payroll, or $556,871, a non-qualified campaign expense and not included m the 

NOCO payables. 

Subsequently, JEFP provided a second explanation of this payroll. The Assistant 

Treasurer indicated that as of January 1,2008, campaign staff worked 24 hours a day, 

seven days a week, with the understanding that salary would be increased for those 

affected. The Assistant Treasurer further indicated that JEFP did not have sufficient 

fiinds to pay the increased salary on the normal pay dates in January and that after 

DOI, JEFP calculated the total amoimt due each employee and paid the increased 

salary on February 7,2008. It is JEFP's opinion tiiat tiie February 7, 2008 payroll 

represents a qualified campaign expense, which was due at DOI and therefore should 

be included in tiie NOCO. 

With respect to resources not being available during January 2008 to pay the 

increased salaries, JEFP records indicate its average daily cash was approximately 

$4.2 million for January, excludmg general election contributions, which could not be 

used for primary expenses. Furtiier, JEFP offered no explanation as to how the 

increased amount was calculated or how and when employees were notified; nor did 

it provide any documentation for the decision to increase salary. As a result, the 

Audit staff did not accept JEFP's explanation. 

The Audit staff notified JEFP of its conclusion by email and gave JEFP 10 days to 

respond. The email explained that $556,871, representmg employee net pay and 

employee/employer payroll taxes, would not be included in the NOCO. Counsel 

objected to the notification by email and demanded a second exit conference. 

5 It is not clear why this payroll was reduced. As can be seen from tiie NOCO statement. JEFP appears to 

have had funds available to meet the payroll, even setting aside the general election contributions, which 

could not be used for primary expenses. 
12 

2. Second Exit Conference 

Although not required, a second exit conference was held on April 2,2009. 

Payroll 

The Audit staff again informed JEFP that $556,871 of salary and payroll taxes 

were considered non-qualified campaign expenses, excludable from the NOCO. 

Counsel offered as a possible (third) explanation that certain staff may have 

traveled to state office locations in order to clean out the offices and retum rental 

cars. However, no documentation supporting this explanation was provided. 

Again, the Audit stai^ provided JEFP an additional 10-day response period. 

In response. Counsel stated that in December 2007, JEFP determmed that those 

staying through the end of the campaign would receive a salary increase, which 

would be paid out as permitted by JEFP resources. JEFP intended this pay 

increase primarily to compensate staff for the fact that JEFP dispatched staff to 

many different field locations throughout the country for the January primaries 

and caucuses, placing them on an around-the-clock schedule. JEFP also designed 

the increase in pay to cover increased costs that staffers incurred because they 

were on the road. In addition. Counsel stated that on January 30,2008, the date of 

ineligibility, JEFP had approximately 70 office and volunteer sites in several 

cities in various states. JEFP had deployed staff to these locations, where it was 

necessary to clean out and close field offices. JEFP determined that it would be 

more efficient to pay these individuals a finite amount mstead of asking 

employees to tum in receipts for reimbursement. According to Counsel, this 

would have been a difficult accountuig process, which JEFP could more 

efficiently manage by a lump-sum salary payment. 

A few days later, JEFP provided a schedule that reflected JEFP's determmation 

that all employees received a 31 percent increase in salary between December 23, 

2007 and February 15,2008, which was paid in one lump sum on February 7, 

2008. JEFP gave examples of three different employees and how this paycheck 

would have been allocated between payable and winding down categories. 

With respect to the accounting burden of paying travel expenses, JEFP had 

accounting procedures in place for handling travel reimbursements. Throughout 

the campaign, tiie staff submitted travel reimbursements. Some were included in 

the NOCO's accounts payable. The effect of a campaign increasing salary in lieu 

of paying for travel reimbursements creates additional expenses for the campaign, 

such as the employer's share of payroll taxes, not to mention the additional tax 

burden placed on employees. While it is reasonable that some staff would have 

been involved in the office closeout process, it is not likely that all staff, such as 

the chief of staff, chief financial officer or finance du:ector, took part ui this effort. 

The close out took place after DOI when only 14 people remained on the payroll. 
13 

Estimated Winding Down Expenses 

In response, JEFP estimated it would spend a total of $2,771,004 in winding down 

expenses for calendar years 2009 tiuough 2011 ($969,972 for 2009, $959,972 for 

2010, $841,060 for 2011).^ For tiie period January 31, 2008 tiu:ou^ April 30, 

2010, estimates were converted to actual winding down expenses. Based on 

JEFP's actual spending from January 2009 through April 2010, the Audit staff 

calculated that estimated winduig down expenses for the period of May 1,2010 

through December 31,2011, $1,423,060 may be necessary to wind down the 

campaign. With the exception of the adjustment for storage costs, the Audit 

staffs remainmg estimated winding down expenses are very close to the amount 

calculated by JEFP. 

It should be noted that throughout the post-audit period, the Audit staff 

consistentiy monitored estimated winding down expenses. Bank records and 

reported activity are reviewed in order to convert estimated winding down 

expenses to actual winding down expenses. 

JEFP's Overall Objection to the Repayment of Matching Funds 

JEFP argues that the combination of a shortfall in the Presidential Primary 

Matching Payment Account (Matching Payment Account) and the lack of a 

quorum in the Commission during the first half of 2008 put JEFP at a 

disadvantage with respect to the receipt of matching funds. JEFP argued that 

matchable contributions received prior to DOI should be matched regardless of 

whether there are qualified campaign expenses to pay, and concluded that the 

failure to match tiiese contributions violates the First Amendment rights of botii 

the candidate and those individuals who contributed to the candidate's committee. 

Witii respect to JEFP's response, tiie Audit staff believes tiiat under 26 USC §9033(c)(2), 

a candidate who has passed the date of meligibility is not entitled to any fiirtiier matching 

fund payments except to defray qualified campaign expenses incurred before the 

candidate became ineligible. The fact that JEFP received contributions that otherwise 

would be matchable does not determine whether the candidate is eligible for fiirther 

payments. The intent of this section is to allow the candidate to receive matching funds 

after the date of ineligibility only to pay debts for qualified campaign expenses. In 

implementing this provision, the Commission considered both debts incurred before the 

date of meligibility and necessary costs of wrapping up the campaign. It also established 

a procedure to monitor whether the candidate still has qualified campaign expenses to be 

paid prior to each post date of ineligibility payment, known as the NOCO Statement.^ 

Finally, the possibility of a shortage m the Matching Payment Account is recognized and 

an equitable distribution calculation is specified in both 26 USC §9037(b) and 11 CFR 

§9037.2. That equitable distribution formula was followed. 

^ In its 2009 estimates. JEFP included storage costs of $18,000 for tiie next seven years. JEFP 

inadvertentiy included this same cost in its 2010 and 2011 estimates. The necessary adjustment has been 

made. 

' See 11 CFR 9034.1(b), and 9034.5 
14 

Subsequent to the date of ineligibility, campaigns are requu:ed to submit a NOCO 

indicating the campaign has sufficient net debt to justify additional matching funds. The 

last matching fimd payment JEFP received was $4,057,453 on July 17,2008. This 

payment was based on a NOCO filed on June 25,2008 that reflected net debt of 

$4,684,340. However, as previously noted, that NOCO statement was misstated. 

There is no question that the combination of the shortfall in the Matching Payment 

Account and the Commission's lack of a quorum delayed payments. The Commission 

took all steps in its power to minimize the impact on all matching fimd recipients. All 

matching fimd requests received through December of 2007 were processed and certified 

while the Commission still had a quorum. That allowed the Treasury Department to 

begin making payments as soon as fimds became available without the need for further 

Commission action. All payments certified by the Commission before January 1,2008 

were paid as funds became available between February and April 2008. This procedure 

also allowed campaigns to borrow fimds using the matching fimds as collateral. JEFP 

used this avenue to borrow $8.9 million in November and December 2007, before any 

payments could have been made under any circumstances. Even though the Commission 

could not certify any payments during tiie first half of 2008, matching fund requests 

received after January 1,2008 were processed, and the campaigns were informed of the 

matchable amount. Campaigns could use those amounts as collateral for loans if they 

desired. Finally, any additional expenses incurred by campaigns as a result of these 

circumstances, such as interest on loans or increased legal costs, would have been treated 

as qualified campaign expenses and could have resulted in an additional matching fimd 

entitlement. 

In summary, although it is true that matchmg fimd payments were delayed during the first 

half of 2008, the Act and Commission's regulations are clear that in order to receive 

matchmg fund payments after the date of ineligibility, a candidate must have net 

outstanding campaign obligations on the date that the matching fimd payments are made. 

JEFP does not argue that it had sufficient obligations to justify the full amount it received 

and agrees that it significantiy understated its assets on its NOCO Statement. The fact 

that JEFP may have received contributions before the date of ineligibility that were not 

matched or that payments were delayed for reasons beyond the control of the 

Commission or JEFP, does not allow JEFP to receive matching fimd payments after the 

date of ineligibility in excess of tiie amount of qualified campaign expenses to be paid. 

Based on tiie above, JEFP was not entitled to $2,352,348 of the matching funds payment 

($4,057,453) it received on July 17,2008. Therefore, the Audit staff reconunended that 

JEFP demonstrate that it did not receive matchmg fimds in excess of its entitlement. The 

Preliminary Audit Report noted that absent such a demonstration, the Audit staff will 

recommend that the Commission make a determination that $2,352,348 in matching 

funds is repayable to the United States Treasury. 

C. Committee Response to the Preliminary Audit Report 

In response to tiie Preliminary Audit Report, Counsel related that there were no major 

discrepancies with the NOCO. Counsel continued to maintaui, however, that the entire 
15 

February 7,2008 payroll should be considered a qualified campaign expense and not as a 

bonus. 

Counsel also restated JEFP's overall objection to repayment of Matchmg Funds as 

discussed in its exit conference response on page 13 of this report. 

In addition. Counsel provided another explanation for the February 7,2008 payroll and 

included a chart that categorized that portion of the payroll in dispute differently from its 

previous explanations. 

JEFP's Breakdown of That Portion ofthe February 7,2008, Payroll in Dispute: 

Additional Make-up Salary $ 44,917 

Winding Down Expenses 

Salary January 31,2008 through February 7,2008 $187,567 

Lump Sum Payment for Expenses $320,659 

Total $553.143^ 

JEFP provided a chart that indicated it reduced the salary of six employees in 2007. 

Although JEFP provided no documentation to support this chart, it concluded that these 

six employees were owed $44,917 and that, at a minimum, this amount should be added 

to the $204,322 that the Audit staff recognized as permissible make-up salary. 

JEFP indicated that the remaining portion of the February 7,2008 payroll was for 

winding down costs, which are qualified campaign expenses. The two main components 

of these winding down costs were staff salaries and lump sum payments made to staff to 

reimburse for travel, lodging and meal expenses incurred during the montiii of January, 

and through February 7,2008. 

According to the response, staff salaries for the period of January 31,2008 through 

February 7,2008 totaled $187,567, an average $3,552 per staff. Lump sum payments for 

expenses totaled $320,659, an average reimbursement of $3,239 per staff. 

The Audit staff reviewed JEFP's response and offers the following: 

Make-up Salary - $44,917. The Audit staff conducted a review of the available payroll 

records for each individual listed by JEFP. The payroll records supported a reduction m 

pay for the six employees, totaling $44,917. However, one of tiie six individuals listed, 

(make-up salary - $16,500) was not paid on February 7,2008. Therefore, any reduction 

in pay for this individual is urelevant when discussmg the February 7,2008 payroll. This 

individual received a payment of $7,675 for salary on February 11,2008 that had already 

been included m accounts payable on the NOCO. As a result, the Audit staff included an 

additional $28,417 ($44,917 - $16,500) as a qualified campaign expense on tiie NOCO. 

The amount in dispute is actually $556,871. JEFP's total is misstated by $3,728. 
16 

Winding Down Salary - $187,567 January 31,2008, to February 7,2008. JEFP 

indicated that winding down salaries for the period averaged $3,552 per employee. JEFP 

appears to be saying that this payroll represented salary payments for only 53 (of the 99) 

individuals paid on February 7,2008 ($187,567 / $3,552). JEFP has not provided any 

documentation that identifies the staff members who were paid. This new explanation is 

inconsistent with the fact that 99 individuals were paid on February 7,2008. 

Further, if the average salary per staff member ($3,552) is incorrect and JEFP meant that 

all 99 individuals were paid for wmding down activities durmg this period, it should be 

noted that 14 of these individuals remained on the payroll and received their normal 

salary for this same period on February 15,2008 (pay period January 31,2008 through 

February 14,2008). The amoimt of that payroll has always been mcluded in the NOCO 

as a winding down expense. The Audit staff does not accept JEFP's explanation. 

Lump Sum Payment for Expenses - $320,659. JEFP claimed that all 99 mdividuals 

incurred expenses for winding down the campaign ($320,659 / $3,239). However, JEFP 

has not provided documentation demonstrating that all 99 individuals incurred expenses 

or retained any documentation supporting these expenses. 

The response stated that high-level staff performed wuiding down duties such as 

organizing and archiving financial documents, contacting vendors, thankmg donors and 

coordinating with the candidates. It is unlikely these types of activities would generate 

reimbursed expenses. Again, these high-level employees, 14 in total, received their 

normal pay covering the same period, likely for performing these same tasks. As 

indicated above, the amount of the February 15,2008 payroll (January 31, through 

February 14,2008) was included in the NOCO as a winding down expense. The Audit 

staff does not accept JEFP's explanation. 

Finally, incurring salary and documented reimbursed expenses after the candidate's date 

of ineligibility would be considered permissible winding down expenses. Even if the 

Commission were to accept JEFP's explanation witii respect to the amount in question 

($528,454 ($556,871 - $28,417)), tiie NOCO statement presented on page 18 includes 

maximum allowable amount of winding down expenses. Including this amount would 

require an adjustment to the remaining estimated winding down expenses presented in 

that NOCO but would not affect the amount of matching funds determined to be in 

excess of the candidate's entitlement. JEFP would still be required to make a repayment 

of matching funds, totaling $2,136,507. 

Specifically, based on JEFP's actual wmding down expenses during the post meligibility 

period, the Audit staff estimated that JEFP will spend an additional $1,216,981 in 

winding down expenditures and reach the wmding down limit ($4,205,000) by August 

31,2012. As previously stated, should the Commission accept JEFP's position on the 

remaining $528,454 the Audit staff would reduce estimated winding down expenses to 

$688,527 ($1,216,981 - $528,454). As a result, assuming a constant level of winding 

down spending, JEFP would reach the winduig down limit by October 2011. The 

repayment would remain at $2,136,507. If, however, the Commission does not accept 
17 

JEFP's explanation and JEFP spends less than the winding down estimate shown, the 

repayment would increase accordingly. 

The Audit staff continues to believe tiiat only $232,739 ($204,322 + $28,417) of tiie 

February 7,2008 payroll represented a qualified campaign expense. The remaining 

$528,454 represented a non-qualified campaign expense. 

Additional NOCO Adjustments 

Based on JEFP's response to Finding 4, Stale-Dated Checks, the following components 

of tiie NOCO have been adjusted accordingly: (1) Cash-m-bank, (2) Accounts Payable 

for Qualified Campaign Expenses and (3) Payable to U.S. Treasury - Stale-Dated 

Checks. 

The Audit staff revised the NOCO to include all revisions discussed above. We have also 

calculated actual winding down expenses through December 31,2010 and updated the 

estimated wmding down expenses through August 31,2012. The revised NOCO appears 

on the following page. 
Assets 

John Edwards for President 

Statement of Net Outstanding Campaign Obligations 

As of January 30,2008 

Prepared thru December 31,2010 

18 

Primary Election Cash-in-Bank 

General Election Cash-in-Bank 

Accounts Receivable 

Capital Assets 

Total Assets 

Liabilities 

Primary Election Accounts Payable for Qualified Campaign 

Expenses @ 1/30/08 

Refund of Cienerai Election Contributions 

Loan Payable @ 1/30/08 

Actual Winding Down Costs (1/31/08 - 12/31/10) 

Estimated Winding Down Costs (1/1/11 - 8/31/12) 

Payable to U.S. Treasury - Stale-Dated Checks 

$3,968,555 

3,321,290 

455,789 

29,134 

$2,341,276 

3.321,290 

8.974,713 

2.988.019 

1,216.981 

59,953 

[a] 

$ 7.774.768 

$18,902,232 

($11,127,464) 

Total Liabilities 

Net Outstanding Campaign Obligations (Deficit) as of January 30,2008 

Footnote to NOCO Statement; 

[a] Estimated winding down costs have been calculated not to exceed limitations at 11 CFR §9034.11(b). 

Shown below are adjustments for fimds received after January 30,2008 through July 17, 

2008. 

Net Outstanding Campaign Obligations (Deficit) as of 1/30/08 

Private Contributions Received 1/31/08 through 7/16/08 

Interest Income Received 1/31/08 tiirough 7/16/08 

Matching Funds Received 1/31/08 tiuough 7/16/08 

Remaining entitlement as of 7/16/08 

Matching Funds Received 7/17/08 

Amount Received in Excess of Matching Fund Entitlement 

($11,127,464) 

358,983 

22,110 

8,825,425 

($ 1,920,946) 

4,057,453 

$ 2,136,507 
19 

D. Draft Final Audit Report 

The Draft Final Audit Report concluded tiiat JEFP received $2,136,507 in excess of tiie 

Candidate's entitlement and should make a repayment of the amount to the United States 

Treasury. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit report. Counsel for JEFP (Counsel) restated many of 

the same arguments made previously with respect to the February 7,2008 payroll and to 

JEFP's overall objection to the repayment of matching fimds. In addition to those 

arguments. Counsel stated that the portion of the February 7,2008 payroll in question 

($528,454) should be treated as a "pre-DOI [date of ineligibility] qualified campaign 

expense" for the following reasons:^ 

• To compensate staff for overtime and extra hours worked during January 2008. 

• To compensate staff for remaining with the campaign after DOI to perform 

functions relating to closing out campaign offices. 

• To compensate staff for extra expenses they may have incurred, including 

assisting m the close-out of the campaign. 

Counsel continued that the final payroll was to compensate staff for their work prior to 

DOI and to deal with obligations (leased office space, rental cars, leased equipment, etc.) 

that were undertaken by the campaign prior to DOI. As such, according to Counsel, the 

fmal payroll amount that the Audit Division is challengmg is a qualified campaign 

expense because the expenditure (1) occurred within several days of the end of the 

campaign, (2) was driven by conditions and obligations in existence prior to DOI, and (3) 

should be treated on the same basis as other pre-DOI expenditures. Counsel also stated 

that "the final payroll was intended to deal with a variety of issues, including all of the 

explanations enumerated in the DFAR." 

In addition, the response addresses a matter not discussed in detail in any response 

received previously received from JEFP. Counsel stated: 

"Since JEFP filed its Response to the Preliminary Audit Report in December 

2010, JEFP has become involved in providing extensive information to the 

Department of Justice. Although the Committee is not under investigation, it has 

been necessary for JEFP to incur unanticipated expenses, including additional 

staff and legal costs. These costs do not fall within the ambit of typical 'winding 

down' costs because they are not incurred for a Commission audit or compliance 

with public financmg laws. Rather, these costs are actually qualified campaign 

expenses that are beyond winding down costs. Because the Committee's efforts 

have been more extensive than anticipated, and have required a large financial 

9 In response to the Preliminary Audit Report, Counsel argued tiiat this amount represented a winding 

down expense and identified an amount that represented staff salaries covering tiie period January 31, 

2008, to February 7,2008, as well as an amount that represented a lump-sum payment for expenses. 
20 

commitment, JEFP might exceed the limit on wmding down costs. (11 C.F.R. 

§9034.11.) Therefore, JEFP is seekmg a determmation from the Commission that 

the Committee may re-allocate those costs as qualified campaign expenses. In the 

altemative, the Committee requests that the Commission determine that, due to 

unforeseen circumstances, these expenses be excluded from winding down costs 

for the purposes of the 10% limit on such costs." 

Finally, Counsel stated that the Statement of Net Outstandmg Campaign Obligations 

(NOCO) as it appeared in tiie Draft Final Audit Report (DFAR) values JEFP's capital 

assets at $29,134 but tiiat this valuation is not an accurate reflection of the current value 

of the assets. Counsel notes that the DFAR reflects valuation of assets from 2008. Since 

that date, the value of these assets has declined dramatically. The response explains that 

electronic items substantially decreased in value with age and several of these items are 

no longer functional. Therefore, the value of capital assets for NOCO purposes should be 

reduced to $1,775, the current value of these assets. Counsel also indicated that it will 

provide additional documentation. 

Commission Conclusion 

On July 21,2011, the Commission considered the Audit Division Recommendation 

Memorandum m which the Audit Division recommended that the Commission determine 

tiiat JEFP received $2,136,507 in matchmg fimds in excess of tiie Candidate's entitiement 

and must repay tiiat amount to the United States Treasury. 

The Commission approved the Audit staff's recommendation. 

I Finding 2. Misstatement of Financial Activity | 

Summary 

A comparison of JEFP's reported financial activity to its bank records revealed a material 

misstatement of reported cash-on-hand in calendar year 2007 through March 31,2008. 

JEFP understated its December 31,2007, cash-on-hand balance by $585,814 and 

understated its March 31,2008, cash-on-hand balance by $468,676. JEFP materially 

complied with the Audit staffs recommendation and amended its most recentiy filed 

report to correct the cash-on-hand balance. 

The Commission approved this fmding. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• the amoimt of cash-on-hand at the begmning and end of the reporting period; 

• the total amount of receipts for the reporting period and for the election cycle; 

• the total amount of disbursements for the reporting period and for the election cycle; 

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). 
21 

Facts and Anal3^is 

A. Facts 

During fieldwork, a comparison of JEFP's reported financial activity to its bank records 

revealed a material misstatement of reported cash-on-hand for calendar year 2007 

through March 31,2008. The endmg cash-on-hand balance for calendar year 2007 was 

understated by $585,814 and the ending cash-on-hand balance as of March 31,2008 was 

understated by $468,676. 

B. Preliminary Audit Report & Audit Division Recommendation 

The misstatement of cash-on-hand was primarily due to two factors. First, JEFP 

understated unitemized receipts, most of which represented small credit card transactions. 

This was due to a contribution processing software malfunction. JEFP was unaware of 

this problem until the audit fieldwork. Second, certain disbursements, although initially 

reported, were inadvertently voided and missing from the amended reports. 

This matter was discussed at the exit conference. The Audit staff provided JEFP 

representatives copies of the Audit staff's bank reconciliations and JEFP indicated a 

willingness to correct the misstated cash-on-hand figures. 

The Audit staff reconunended that JEFP amend its most recently filed report to correct 

the cash-on-hand balance, with an explanation that the change resulted from a prior 

period audit adjustment. It was also recommended that JEFP reconcile the cash balance 

of its most recent report to identify any subsequent discrepancies that may have affected 

the adjustments recommended by the Audit staff. 

C. Committee Response to the Preliminary Audit Report 

In response, JEFP amended its reports and reiterated that the misstatements were the 

result of an anomaly m the software used by JEFP. 

D. Draft Final Audit Report 

In tiie Draft Final Audit Report, the Audit staff acknowledged that JEFP amended its 

reports to correct the misstatements. 

Commission Conclusion 

On July 21,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

finding that JEFP understated its ending cash-on-hand balance. 

The Commission approved the Audit staffs recommendation. 
22 

I Finding 3. Failure to Itemize Loan Repayments 

Summary 

During audit fieldwork, the Audit staff identified loan repayments, totaling $4,344,469, 

that were not itemized. Although JEFP reported the amounts on the Detail Summary 

Pages and itemized them on Schedule C (Loans) and Schedule C-1 (Loans and Lines of 

Credit From Lending Institutions), it did not itemize them on Schedule B-P (Itemized 

Disbursements). JEFP complied with the Audit staffs recommendation and amended its 

reports to itemize the loan repayments. 

The Commission approved this finding. 

Legal Standard 

When to itemize. When a loan repayment is made to any person in any amount, the 

committee must report the: 

name and address of the payee; and 

date and amount of payment. 2 U.S.C. §434(b)(5)(D) and 11 CFR 

§104.3(b)(4)(iii). 

Facts and Analsrsis 

A. Facts 

During fieldwork, the Audit staff identified loan repayments, totaling $4,344,469, which 

JEFP did not itemize. Although JEFP mcluded the aggregate amount of these payments 

on the Detailed Sununary Pages, it failed to provide supporting Schedules B-P, itemizing 

the payments. 

B. Preliminary Audit Report & Audit Division Recommendation 

This matter was discussed at the exit conference. There was no obvious reason why the 

loan repayments were not itemized, but a JEFP representative agreed to amend the 

committee's reports as necessary. 

The Audit staff recommended that JEFP file amended reports itemizing the loan 

repayments on Schedule B-P, line 27(b). 

C. Committee Response to the Preliminary Audit Report 

In response, JEFP filed amended reports itemizing the loan repayments. 

D. Draft Final Audit Report 

In the Draft Final Audit Report, the Audit staff acknowledged that JEFP amended its 

reports to itemize the loan repayments. 
23 

Commission Conclusion 

On July 21,2011, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended that the Commission adopt a 

finduig that JEFP failed to itemize loan repayments, totaling $4,344,469, on Schedule 

B-P (Itemized Disbursements). 

The Commission approved the Audit staffs recommendation. 

I Finding 4. Stale-Dated Checks 

Summary 

The Audit staff identified 202 stale-dated checks, totaling $267,529, and recommended 

that JEFP provide evidence that the checks are not outstanding or make a payment to the 

United States Treasury. In response, JEFP documented that certain checks were no 

longer stale-dated as they either had cleared the bank or were for amounts that were 

determined to be not owed. As a result, the remaining 128 stale-dated checks, totaling 

$141,808, require repayment to the United States Treasury. 

The Commission approved this finding. 

Legal Standard 

Handling Stale-Dated (Uncashed) Checks. If a committee has issued checks that the 

payees (creditors or contributors) have not cashed, the committee must notify the 

Commission of its efforts to locate the payees and encourage them to cash the 

outstanding checks. The coinmittee must also submit a check payable to the United 

States Treasury for the total amount of the outstandmg checks. 11 CFR §9038.6. 

Facts and Analysis 

A. Facts 

During fieldwork, tiie Audit staff identified 202 stale-dated checks, totalmg $267,529. 

The checks were dated between February 22,2007 and May 21,2008 and had not cleared 

the bank as of February 28,2010. A majority of the stale-dated checks represented 

refunds of general election contributions. 

B. Preliminary Audit Report & Audit Division Recommendation 

This matter was discussed at the exit conference during which the Audit staff provided 

JEFP representatives with a schedule of the stale-dated checks. In response, JEFP 

indicated that it contacted a number of individuals/vendors and reissued $114,481 in 

stale-dated checks but did not provide the check numbers of the reissued checks. 

Without the check numbers, the Audit staff could not determine whether any of the 

reissued checks had cleared the bank. 
24 

In the Preliminary Audit report, the Audit staff recommended that JEFP provide evidence 

tiiat: 

• the $114,481 m reissued checks have cleared the bank by providing copies of the 

front and back of the negotiated checks along with bank statements; and 

• the remaining stale-dated checks, totaling $153,048 ($267,529 - $114,481) had 

either been reissued and cleared JEFP's bank or had been voided because no 

obligation exists. 

Absent such evidence, the Audit staff recommended that JEFP pay $267,529 to the 

United States Treasury. 

C. Committee Response to the Preliminary Audit Report 

In its response, JEFP stated that 83 checks, totaling $138,871, should be removed from 

the stale-dated check list and provided documentation in support of its position. 

Based on a review of JEFP's response and the documentation presented, the Audit staff 

identified that 74 checks, totaling $125,721, were no longer stale-dated. For the 

remaining stale-dated checks, JEFP did not provide sufficient documentation to support 

its position that no obligation existed or that the checks had cleared the bank as of 

December 31,2010. Therefore, JEFP is requu:ed to pay the United States Treasury for 

the remaining 128 stale-dated-checks, totaling $141,808. 

D. Draft Final Audit Report 

The Draft Fmal Audit Report concluded that JEFP was requbed to pay the United States 

Treasury for 128 stale-dated checks, totalmg $141,808. 

Commission Conclusion 

On July 21,2011, the Coinmission considered the Audit Division Recommendation 

Memorandum in which the Audit Division recommended tiiat tiie Commission find tiiat 

JEFP should pay $141,808 to tiie United States Treasury. 

The Commission approved the Audit staffs recommendation.