FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

June 4,2015 

MEMORANDUM 

To; 

Through: 

From: 

The Commission 

Alec Palmer 

Staff Director 

Patricia C. Orrock •J10& 

Chief Compliance OfTicer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Martin L. Favin 

Audit Manager 

mB" 

By: 

Subject: 

Camilla Reminsky 

Lead Auditor OAAudit Division Recommendation Memorandtim on Gary Johnson 2012, Inc 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendations below and discusses the findings in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel (OGC) has 

reviewed this memorandum and concurs with the recommendations. 

Please note that pursuant to 11 CFR § 9038.2(a)(2) the notification of repayment must be 

delivered via the Final Audit Report to Gary Johnson 2012, Inc (GJ2012) no later than 

three years after the candidate's Date of Ineligibility (DOI), which in this case is May 5, 

2015. GJ2012 has entered into several tolling agreements in order to extend the time for 

notification of repayment, and the current deadline is July 8,2015. Therefore, the Audit 

Division and Office of General Counsel (OGC) have developed a plan to exp^ite 

processing of the audit report. 
Finding 1. Net Outstanding Campaign Obligations 

In response to the Preliminary Audit Report (PAR), Gary Johnson 2012, Inc 

(GJ2012) provided additional bank statements and invoices to show actual 

winding down costs, and did not dispute the Net Outstanding Campaign 

Obligations calculations contained in the PAR. In response to the DFAR, GJ2012 

accepted the Audit staffs Net Outstanding Campaign Obligations calculations that 

show that Gary Johnson did not receive matching fund payments in excess of his 

entitlement. 

The Audit staff recommends that the Commission fmd that the Candidate did not 

receive matching fund payments in excess of his entitlement.' 

Finding 2. Amounts Owed to the U.S. Treasury 

In response to the PAR, GJ2012 provided additional information, and disputed the 

Audit staffs conclusion. In response to the DFAR, GJ2012 disputed the premise^ 

for the Audit staffs calculation of amounts owed to the U.S. Treasury and stated 

that GJ2012 acted in good faith. GJ2012 also agreed with the Audit staffs 

calculation of matching funds received based on contributions ineligible to be 

submitted, and stated that they would repay this amount to the U.S. Treasury. 

Directive 70 provides a committee with an opportunity for an audit hearing to 

address violations of the FECA (Title 52 audit findings). If the Commission 

makes a determination that matching funds are repayable to the U.S. Treasury, 

then the Candidate may request a hearing on violations of the Matching Funds Act 

through the administrative review process (11 C.F.R. § 9038.2(c)). Nevertheless, 

GJ2012's legal counsel (Counsel) requested leeway to address the part of this 

finding that he believed is separate and apart from the repayment issue so that 

GJ2012 may address this later if the Commission determines that repayment is 

necessary. Counsel stated that if it were not for the failure to update the disclaimer 

on GJ2012's website, GJ2012 would have been compliant with the Matching Fund 

Act. Counsel stated that GJ2012 acted as it thought it was allowed to, allocating 

the first $250 from each contributor to the primary election and getting that 

amount matched, and allocating all subsequent amounts from each contributor to 

the general election. 

Counsel presented a chart that showed that funds post-DOI were deposited first to 

the general election account, then the first $250 from each contributor was 

transferred to the primary election account, thus keeping matchable and nonmatchable contributions separate. He further stated that he sees the Audit staffs 

calculations, based on commingled accounts, as an overbroad interpretation of the 

Kermedy case (Kennedy for President Committee v. Federal Election Commission 

(D.C. Cir. 1984)). Counsel explained that the accounts were separate, with all 

' The Audit staff notes that in the response to the PAR and the DFAR, GJ2012 alluded to assets which have 

not yet been valued, and the possibility of debt settlement. The addition of assets and/or reduction of debt 

on the NOCO could result in the Candidate having received matching fiind payments in excess of his 

entitlement. 

~ OGC has addressed GJ2012's arguments in its legal analyses on the DFAR and this recommendation 

memorandum. 
matching funds and primary contributions kept in one account, and all general 

contributions kept in another account. He stated that every expense that primary 

funds were used for was a qualified expense, and that the activity is clearly 

separated. Coimsel further stated that the repayment ratio formula did not need to 

be applied in this case because the activity can clearly be seen, and that using the 

repayment ratio does not meet the purpose of the statute. 

Counsel's argument for leniency is based on the premise that GJ2012 intended to 

change its disclaimer after the primary election, but the fact remains that the 

disclaimer was not changed, and in keeping with the disclaimer actually used, the 

first $2,500 from each contributor was properly designated by Audit staff to the 

primary election and all subsequent donations from each contributor were 

designated to the general election. Counsel's argument is also based on the 

premise that if the disclaimer had been changed, GJ2012 would not have spent 

private funds allocated to the primary election on non-qualified (general election) 

expenses. The Audit staff notes that after DOI,GJ2012 deposited $158,125 in 

private donations directly in the primary account and $1,267,858 in the general 

election account. GJ2012 only transferred $2,200 from the general election 

account to the primary election account. The Audit staffs rough estimate of 

contributions aggregating $250 or less received after DOI is more than several 

hundred thousand dollars. The Audit staff has seen no evidence from bank 

statements or similar documentation that any more than $160,325 ($158,125 in 

private donations directly deposited in the primary account + $2,200 in transfers 

from the general account to the primary account) was deposited into the primary 

account. If funds designated to the primary election were kept in the general 

election account, then primary and general election funds were still commingled, 

regardless of which disclaimer GJ2012 was following. 

A supplemental response submitted by GJ2012 after the audit hearing addressed 

the legal premise for the method of calculation of repayment, and is addressed in 

the attached memo from the Office of General Counsel. 

The Audit staff recommends that the Commission make a determination that 

$333,441 is payable to the United States Treasury. 

Finding 3. Use of General Election Contributions for Primary Election 

Expenses 

In response to the PAR, GJ2012 stated that the Committee used an acceptable 

method of accounting to separate general and primary election receipts, and that 

the use of general election contributions for primary election expenses was an 

advance against anticipated matching funds. In response to the DFAR, GJ2012 

requested that the arguments made in response to the PAR be reconsidered and 

requested an audit hearing to present GJ2012's arguments. 

During the audit hearing. Counsel agreed that GJ2012 did use general election 

contributions for primary election expenses. However, Counsel stated that these 

were only to cover short term gaps in cash flow and it would have been a burden to 

seek outside funds for such short term matters. Counsel stated that the finding 
lacks context, and that it seems unieasonable and not the intent of the Act to force 

committees to engage in commercial transactions in order to cover such short term 

cash flow issues. Counsel emphasized that these were short-term loans only, and 

stated that he drought that it would be easy to tell if any committee was abusing 

this leeway. 

After considering Counsel's presentation during the audit hearing, the Audit staff 

maintains that GJ2012 was not permitted to use general election contributions for 

primary election expenses prior to the primary election date. The Audit staff notes 

that GJ2012 did have negative bank balances according to the bank's daily balance 

calculations on five occasions before the primary election date, presumably using 

an overdraft allowance in the bank account. These negative balances lasted at 

most for two days. However, if the general election funds had not been kept in the 

bank account, it would have been negative thirty-nine days, at an average of six 

days at a time. The longest time that GJ2012's balance would have been negative 

had general election contributions not been in the account was the sixteen days 

preceding the primary election date. The Audit staff contends that the general 

election funds should have been either deposited in the general election account 

when received, or transferred to that account inunediately after GJ2012 discovered 

that general election funds were in the primary election account, and should not 

have been available to cover overages instead of the bank overdraft that GJ2012 

used on occasion. 

During the audit hearing. Counsel said that in the DFAR, the Audit staff stated that 

it took into account that time elapsed between the date a contribution was received 

and the date it was deposited to the bank, then contradicted itself and did not 

actually take that into account while calculating the amount of general election 

funds used for primary election expenses. Counsel's interpretation of the Audit 

staffs actions is incorrect. The Audit staff used the contribution date provided by 

GJ2012 rather than the bank deposit date. The Audit staff notes that by using the 

contribution dates in its calculations. Audit staff used the date that GJ2012 

considered contributions to be in its accounts rather than using the bank deposit 

date, which could be days later. Thus, the Audit staff calculated funds available to 

GJ2012 at the earliest possible date, and in fact, the date that GJ20I2's accounting 

staff considered those fiinds to be at its disposal. The Audit staff used GJ2012's 

contribution dates in order to provide the most beneficial outcome for GJ2012. 

The Audit staff recommends that the Commission find that GJ2012 used $12,936 

in general election contributions for primary election expenses prior to the general. 

election. 

Finding 4. Reporting of Debts and Obligations 

In response to tiie PAR, GJ2012 amended its reports to materially correct the 

disclosure of debts and obligations on Schedule D-P. In response to the DFAR, 

GJ2012 discussed its method of accounting, in which GJ2012 "re-allocated 

payments" in December of 2014 to pay off $171,000 of the $300,000 win bonus 

within the 30-day regulatory requirement, so that the $171,000 would be 
considered a qualified expense.^ The Audit staff notes that while GJ2012 may 

amend its reports to reflect corrections to reporting or apply a different accounting 

method at any time, the win bonus was not actually paid within the time frame, as 

required. As this bonus was not paid within 30 days after the Candidate's 001, the 

Audit staff does not consider any portion of the bonus to be a qualified campaign 

expense. 

In response to the DEAR, GJ2012 requested an audit hearing during which 

Comisel stated that GJ2012 had amended its reports to correctly report debts and 

obligations, and that the there were no further substantive conunents regarding this 

finding. 

The Audit staff recommends that the Corrunission find that GJ2012 did not 

disclose debts to nine vendors totaling $447,567, as required. 

Finding 5. Extension of Credit by a Commercial Vendor 

In response to the PAR, GJ2012 presented an affidavit from the proprietor of 

NSON and redacted contracts to dispute the Audit staffs suggestion that NSON 

made a prohibited contribution to GJ2012. In response to the DEAR, GJ2012 

stated that NSON should not be forced to reveal the names of its clients, and that it 

is in the normal course of business for an entity to be late in billing. GJ2012 

further stated that it could not value the assets referred to in their response to the 

PAR at this time, and that it will not pursue debt settlement until after the audit is 

completed. In its response to the DEAR, GJ2012 also requested an audit hearing 

to present the Committee's arguments. 

During the audit hearing, Coimsel stated that GJ2012 does not believe that there 

was any extension of credit by NSON outside the normal course of business. 

Counsel stated that the language of the contract stated that NSON may assess 

interest charges, not that the company must assess those charges. Counsel further 

stated that vendors regularly use the threat of interest charges as leverage and do 

not always assess those charges. In addition. Counsel stated that there is nothing 

that says a vendor must sue in order to get paid. In fact, it would not be in the 

vendor's best interest to litigate, as it might damage its reputation and may lead to 

a difficulty in finding or keeping other clients. Counsel stated that any vendor 

would work with their client in order to seek payment without litigation, and stated 

that there have been conversations between NSON and GJ2012 in order to resolve 

the outstanding payments. Counsel also stated that part of the attempt to settle the 

outstanding debts hinges on intangible assets for which GJ2012 does not yet have 

a value. Counsel stated that GJ2012 could not value the assets until after the audit 

and repayment process is over, because over time, the assets lose value, and they 

may also lose value if GJ2012 must make a large repayment to the U. S. Treasury. 

Counsel addressed the Audit staffs assertion in the DEAR that it is unable to 

determine whether the contracts between NSON and other clients indicate that 

^ This argument pertains to the calculations in Finding 2 of non-qualified expenses, not to the substance of 

Finding 4. 
NSON contracted with other political and non-political clients in the same manner, 

because the client names have been redacted. Counsel stated that the fact that 

these contracts are all substantially similar shows that NSON contracted in the 

same manner with all its clients. Counsel further stated that it would not be 

reasonable to breach confidentiality with those clients to reveal their names so that 

the Audit staff can verify that the provided contracts are with both political and 

non-political clients. 

The Audit staff recommends that the Commission find that NSON made a 

prohibited contribution to GJ2012 by extending credit beyond the normal course of 

business and not making commercially reasonable attempts to collect $1,752,032 

from GJ2012 for services rendered. 

If this recommendation memorandum is approved, a Proposed Final Audit Report will be 

prepared as soon as possible after the Commission's vote, due to the impending 

notification of repayment deadline. 

This recommendation memorandiun is being circulated on a 72-hour tally basis. In case 

of an objection. Directive No. 70 states that 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 Camilla Reminsky or Marty Favin at 694-

1200. 

Attachments; 

- Draft Final Audit Report of the Audit Division on Gary Johnson 201-2, Inc 

- Office of General Counsel Legal Comments on the Audit Division 

Recommendation Memorandum on Gary Johnson 2012, Inc (LRA #905) 

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

Audit Division on Gary Johnson 

2012, Inc 

(April 1, 2011 - November 30, 2014) 

' The audit 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political committee 

established by a candidate 

who receives public funds 

for the primary 

campaign 

determines whether the 

candidate was entitled to 

all of the matching funds 

received, whether the 

campaign used the 

matching funds in 

accordance with the law. 

whether the candidate i 

entitled to additional^,^ , 

matching fiinds, an<r 

whether the campaign 

otherwise 

the limil 

prohibj 

discli 

of the el< 

the United States. 

City, Utah. For 

inpiugn 

iirements 

law. 

Future Acti^ 

The Commission 

initiate an enforcem:-nt 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign (p.: 

Gary Johnson 2012, Inc is the ^^al campaign committee 

for Gary Johnson, a candidalxg^ ilic Libertarian Party 

nomination for the office 

The Committee is head 

more information. 

Organization, p. .3. 

Financial Activity tk 

• Recf^ts ^ 

o (Imtributions from M::'.:Juals 

o Matching 1-iinds Recei--cd 

TiilanivccipLs 

Disbursehl^Ii w 

i^Expenditures 

Fundraisi% Disbursements 

Exempt Lepfand Accounting 

PI 

TotaTMsbursements 

$ 2,249,318 

510,261 

$ 2,759,579 

$ 2,534,497 

153,019 

28,130 

$2,715,646 

is and Recommendations (p. 5) 

NdlC'Outstanding Campaign Obligations (Findiiig 1) 

Amounts Owed to the U.S. Treasury (Finding 2) 

Use of General Election Contributions for Primary 

Election Expenses (Finding 3) 

Reporting of Debts and Obligations (Finding 4) 

Extension of Credit by a Commercial Vendor (Finding 5) 

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

Audit Division on 

Gary Johnson 2012, Inc 

(April 1, 2011 - November 30, 2014) 

J 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Inventory of Campaign Records 

Committee Structiue 

Part n. Overview of Campaign 

Campaign Organization 

Overview of Financial Activity 

Part m. Summaries 

Findings and Recommendations 

Amounts Owed to the United States Trcasiiry, 

Part IV. Findings and R^ommendations 

Finding 1. Net Outstanding Cam^^:i 0-*iigations 

Finding 2. Amounts Owed to the U.S. Ii j-Lsiiry 

Finding 3. Use of General Election ^iti ibiii for P: Election 

Expenses 

Finding 4. Report^ jtoandOblif 

Findings. Exteagyi^n ^tbyaCo^ axial Vendor 

3 

4 

5 

7 

8 

11 

18 

20 

22 
Parti 

Background 

Authority for Audit 

This report is based on an audit of Gary Johnson 2012, Ihc (GJ2012), undertaken by the 

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

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

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

audit of the qualifi^ campaign expenses of every candidate and^^wthorized 

committees who received [matching] payments under section^gpvTniMso, Section 

9039(b) of the United States Code and Section 9038.1(ii)(;) nl ilu; Commission's 

Regulations state that the Commission may conduct o:lici i-x:iiiiiiiiiiiuiis and audits from 

time to time as it deems necessary. 

Scope of Audit 

This audit examined original and amended reports 

notification letter was sent on December 3,2012^.^ 

filings of the 2012 30 Day Post-General and Year-! 

covered by this audit: 

1. the campaign's compliance with liM^;mn§ for contritii 

2. the campaign's compliance with th^nura^h&for candi 

3. the campaign's compliance with the prohibit 

contributions; ^ 

the disclosure of received; 

the disclosure gi dinhursei]^^, debts ant^bligations; 

the consistency bciui^ repuiud ligures a^'^^lnk records; 

the accuracy of the i^ciiiciii t;: \o' ()..'-::.r.::ing Campaign Obligations; 

the cajg^E^^^ compliance with spciiding limits; 

the.e^pletencs.s ol 

2012 before ilic audit 

examined^e original 

. The following areas were 

loans; 

contributions and loans; 

prohibited 

4. 

5. 

6. 

7. 

8. 

9. 

icr campaign to the review. 

Invem 

The Audit sta 

audit fieldwork. 

immediately. 

Campaign Records 

icts an inventory of campaign records before it begins 

irds were materially complete and fieldwork commenced 

Committee Structure 

GJ2012 was the only campaign committee authorized by Gary Johnson, the Candidate, 

for the 2012 Ihesidential election. This committee conducted both primary and general 

election activity for the Candidate. GJ2012 opened two bank accounts; a primary 

account and a general account. In practice. GJ2012 deposited nearly all contributions 

' Amendments filed after Decemlier 3,2012, were ^ven a limited review to determine if issues noted in the 

Preliminary Audit Report were corrected by GJ2012. 
received before the Candidate's nomination in the primary account, and most 

contributions received after the nomination in the general account. GJ2012 received 

matching funds for the primary campaign and this audit covered committee activity and 

information obtained to determine whether or not expenses were qualified campaign 

expenses defrayed in connection with the primary election. 

r 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration April 22.2011 

• Date of Ineligibility^ May 5,2012 

• Audit Coverage April 1.201Ligovember 30.2014' 

Headquarters S^t Lake01^!^iiil': 

Bank Information 

• Bank Depositories One,J^ 

• Bank Accounts One prima^ checking aS^bnt and one general 

i^'liccking account ^ 

Treasurer 

• Treasurer When Audit Was Conducted Chet (^pvin 

• Treasurer During Period Covered by^udit ElizabelM^orth (4/22/11 -1/4/12) 

^ChetGoodvi^im i 3/12 - Present) 

Management Information 

• Attended Commission Campaign Financ^^ 

Seminar 

Who Handled 

Recordkeeping T; 

PaidStafjf 

^ A threshold submission was submitted on April 26,2012, and the Commission certified the Candidate as eligible 

to receive matching funds on May 24,2012. The period during which the Candidate was eligible for matching 

funds ended on May S, 2012, his date of ineligibility (DOI). However, GJ2012 submitted contributions for 

matching funds it had received before DOI. Due to the campaign's outstanding debt, GJ20I2 was able to submit 

primary election contributions received after DOI for matching as well. 

* The Audit staff conducted limited reviews of receipts and expenditures after December 31,2012 to determine 

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

CAudited Amounts) 

Cash-on-hand @ April 1,2011 $0 

Receipts 

o Contributions from Individuals' 2.249.318 

o Matching Funds Received" .i510.261 

Total Receipts 

Disbursements 

o Operating Expenditures .r "^534.497 

o Fundraising Disbursements ... ^ 

o Exempt Legal and Accounting 

Disbursements 28^.. 

Total Disbursements \ $2,71S,64(r^ 

Cash-on-hand @ December 31,2012 $434)33/^ 

is Sa.. 

-J# 

% •• •'^K r 

^ GJ2012 received approximately 24,S00 contributions fiom more than 1,400 individuals. 

' As of the Candidate's DOI (May S, 2012), GJ2012 had received no matching funds. GJ2012 received 6 payments 

totaling $632,017 as of January 8,2013. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Net Outstanding Campaign Obligations 

The Audit staffs review of GJ2012's financial activity through November 30,2014, and 

estimated winding down costs indicated that the Candidate did ^j^^ive matching fund 

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recommem 

additional bank statements and invoices to show 

dispute the Net Outstanding Campaign Obligati( 

Preliminary Audit Report. (For more detail. 

Finding 2. Amounts Owed to the l^^dasury 

During audit fieldwork, the Audit sta^s review of GJ^i receipts and disbursements 

determined that primary election fund^ were spent on no::-t: :alified campaign expenses 

and that matching funds were received lor coir.ributions th^vcrc hot eligible to be 

provided 

Its, and did not 

icd the 

matched. 

In response to the Preli 

additional informatii 

find GJ2012's ar| 

determination that $33 

seep. 11.) 

During ai 

during the 

receipts on 

aiion, GJ2012 provided 

itaff s conclusion. Audit staff does not 

that the Commission make a 

States Treasury. (For more detail. 

3. Us Election Contributions for 

.Election 

jldwork, the .Audit itaff s review of GJ2012's receipts and disbursements 

[ period iiidlcated that GJ2012 spent $12,396 in general election 

I expenses prior to the Candidate's DOI. 

In response to the PrJEfininary Audit Report, GJ2012 stated that the use of general 

election receipts for primary election expenses was an advance against anticipated 

matching fiinds. The Audit staff notes that short-term advances against matching funds 

must come from a qualified financial institution, and be secured by certified matching 

funds amounts. (For more detail, see p. 18.) 

Finding 4. Reporting of Debts and Obligations 

During audit fieldwork, the Audit staff's review of GJ2012's disbursements indicated that 

debts from seven vendors totaling $407,455 were not disclosed on Schedule D-P (Debts 

and Obligations), as required. 
In response to the Preliminary Audit Report, GJ2012 submitted additional invoices for 

debts to two vendors that were not previously disclosed to Audit staff. This resulted in a 

total of $447,567 in debts owed to nine vendors that were not disclosed on Schedule D-P 

as required. GJ2012 amended its reports to materially correct the disclosure of debts and 

obligations on Schedule D-P. (For more detail, see p. 20.) 

Finding 5. Extension of Credit by a Commercial Vendor 

During audit fieldwork, the Audit staffs review of GJ2012's disbursements suggested 

that NSON^ made a prohibited contribution to GJ2012 by exten^^credit beyond its 

normal course of business and not making commercially reason^^lttempts to collect 

$1,752,032 from GJ2012 for services rendered. 

In response to the Preliminary Audit Report, GJ2012 w^i^ted aits&davit from the 

proprietor of NSON and redacted contracts to dispmjr^Mdit sta^^^gestion that 

NSON made a prohibited contribution to GJ20^^owever, neither G^ 12 nor the 

vendor presented any documentation to demqpiimiic that d^: clients were su.^^ to the 

same billing practices, or that GJ2012 was reguLirl v atid li^^billed for sqP^ices 

rendered. (For more detail, see p. 22.) 

^ NSON is a registered corporation in the state of Utah that also does business as Political Advisors. 

GJ2012 reported disbursements to Political Advisors, but all contracts and invoices were received from 

NSON. 
Summary of Amounts Owed to the United 

States Treasury 

• Finding 2.A. 

(P. 13) 

Payment of Non-Qualified Expenses 

with Primary Election Funds 

$332,191 

• Finding 2.B. 

(p. 15) 

Receipt of Matching Fiinds Based 

on Ineligible Contributions 

1,250 

Total Due U.S. Treasury 
Part IV 

Findings and Recommendations 

Finding 1, Net Outstanding Campaign Obligations 

Siumnazy 

The Audit staffs review of GJ2012's financial activity through November 30,2014, and 

estimated winding down costs indicated that the Candidate did notreceive matching fund 

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recoi 

additional bank statements and invoices to show actual 

dispute the Net Outstanding Campaign Obligations 

Preliminary Audit Report. 

Legal Standard 

A. Net Outstanding Campaign Obligations (NOC 

candidate's date of ineligibility (see definition below)" 

statement of "net outstanding campaign obligations, 

among other things: 

• The total of all committee assets 

coimnittee and capital assets lisi 

• The total of all jjl^nding obli 

• An estimate of iiecessHry winding 

12 provided 

costs, and did not 

'.allied in the 

IS days af^ the 

Idate must submit a 

si.iicment must contain, 

on ha^, amounts owed to the 

" value; 

campaign expenses; and 

costs. llCFR§9034.5(a). 

B. Date of Ineligibiiit^^ie dale of ineligibili whichever of the following dates 

occurs first: 

iy on wj'fldi thi^.::iJ.date C^N to be active in more than one state; 

i 30th day^lowing ::ie .teeond consecutive primary in which the candidate 

sieves less than 10 perceni of the popular vote; 

1 of the maiddng p^ment period, which is generally the day when the 

ates its ^didate for the general election; or 

In the ct^^f a caudate whose party does not make its selection at a national 

conventioii^&^day of the last national convention held by a major party in 

the calendar ^r. 11 CFR §§9032.6 and 9033.5. 

C. Deflnition of Non-Qualified Campaign Expense. A non-qualified campaign 

expense is any expense that is not included in the definition of a qualified campaign 

expense (see below). 

D. Qualified 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 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 the 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 widi winding down the campai^^^erminating political 

activity. 11 CFR §9034.4(a)(3). 

E. Entitlement to Matching Payments after Date of 

ineligibility (see above), a candidate has net our"—"' 

under 11 CFR §9034.5, that candidate may con 

matchable contributions received and deposit 

Presidential election year provided that he or 

on the day when the matching payments are made. 

', on the date of 

laign Oblations as defined 

matchi^^ments for 

December siK'i 'te 

itanding c.-.-.riign debts 

i4.1(b). ^ • 

F. Winding Down Costs. A primar^ clcciiun candidate vi^does not run in the general 

election may receive and use matching iunils 

of the candidate's withdrawal from the 

party's nominating conversion, if the can 

A primary election can^ilic who runs in 

after the general elecd^ bcloic using any 

regardless of whettil^^.$^candic^ receives 

11 CFR §9034.11(d). 

Facts 

notifying:. J C&runission in writing 

inatj^ or after the date of the 

iwn before the convention, 

on must wait until 31 days 

funds for winding down costs, 

funds for the general election. 

A. 

The 

GJ2012's 

down costs 

appears on the fol 

ibility (DOI) was May 5,2012. The Audit staff reviewed 

igh November 30,2014, analyzed estimated winding 

Statement of Net Outstanding Campaign Obligations that 

iage. 
10 

Gary Johnson 2012, Inc 

Statement of Net Outstanding Campaign Obiigations 

As of May 5,2012 

Prepared February 10,2015 

Cash in bank 

Totai Assets 

Liabilities 

Accounts Payable (A?) for QualiHed Campaign 

Expenses as of S/S/12 

AP (Primary Account) Billed Post-DOI 

Winding Down (WD) Costs (5/5/12 - 12/6/12) 

Actual WD Costs (12/7/12 -11/30/14) [a] 

Estimated WD Costs (12/1/14 - 6/30/15) [b] 

Total Liabilities « 

ions 

$ (10,856)* 

$ (10,856) 

8,352) 

3.052) 

0 

(22,809) 

(112,268) 

(Deficit) as of May 5,2012 

Footaotes to NOCO Statement; \ 

[a] The General election was held on NovemD^ 6, 

the General election gOj|l^nber 7,2012??-^ A 

[b] Estimated windinedb'im''^^.will be compS^ to actual 

accordingly. 

5(2.117,471) 

r 

$(2,128,327) 

down period began 31 days after 

ling down costs and adjusted 

Shown below are adjust: 

2012 throughijafluarv 8, 

Fafter the Candidate's DOT on May 5, 

: received its last matching fimd payment. 

Ne^iitetanding C^imigh (3i^g^6ns (Deficit) as of May 5, $(2,128,327) 

Less: (^iiiributions Kccc|ved (May 6,2012 to January 8, 

2013) d 

1,216,661 

Less: MatcHK^Find^'bceived through January 8,2013 632,017 

Remaining Net ^^tandlng Campaign Obligations 

(Deficit) as of January 8,2013' 

$ (279,649) 

As presented above, the Candidate has not received matching funds in excess of his 

entitlement. 

' The primary election campaign's May S, 2012 cash balance was negative due to short term use of funds 

from the general election account, (see Finding 3 on page 16 for more detail). 

' GJ2012 and its major vendor, NSON, are discussing the possibility of waiving the interest on debts not 

repaid. If this debt is forgiven, the NOCO will require an adjustment. See Finding S for additional 

detail. 
11 

B. Preliminary Audit Report Recommendation 

The Audit staff presented a preliminary NOCO statement and related work papers to 

GJ2012 representatives at the exit conference. The preliminary NOCO statement 

showed that GJ2012 was in a surplus position and GJ2012 would be required to repay 

some matching funds received to the U.S. Treasury'". Audit staff requested that GJ2012 

provide additional documentation after the exit conference to enable the Audit staff to 

update the NOCO statement as necessary. On January 24,2014, and June 18,2014, 

GJ2012 submitted additional invoices in support of debts incurred for primary election 

expenses. These additional invoices were mostly for interest ow^.on debts incurred in 

relation to the primary election that had not been paid, and one^^^^ibe previously not 

provided to the Audit staff for a debt incurred for fimdraising aciivity in relation to the . 

primary election. The Audit staff reviewed this document ion im^vised the NOCO 

accordingly. As a result of this additional documenta^^re re\^^^OCO indicated 

that the Candidate did not receive matching funds in^b^»of his arnilcinent. 

The Audit staff recommended that GJ2012 

required in connection with any part of the 

additional comments. 

d^rnsirate 

NOC O 

adjustments 

provide any 

es are 

C. Committee Response to Prelimlnnry .\udit Report 

In response to the Preliminary Audit Report r(^^^endation;i^pS!t)12 did not dispute the 

NOCO calculations contained on the Prel^inaf^iuiit Repoj^owever, provided 

additional bank statements and invoices t^iqs^ciiial aiidp^ditional estimated winding 

down costs as well as adi^^^accounts p^^le for qualified campaign expenses. 

These expenses hay|^^n in^^rated into ^ revised NOCO that reflects a deficit of 

$279,649 as of No^e^^ 30.2^4. The revised .NOCO indicates that the Candidate did 

not receive matching fi^> ir. e^ct^ of his enljileinent". 

2. Anjfejim to the U.S. Treasury 

During audi^ddwork, the Audit staffs review of GJ2012's receipts and disbursements 

determined th^^nmary el^ion funds were spent on non-qualified campaign expenses 

and that matchin^ygds^^ received for contributions that were not eligible to be 

matched. 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional information, and disputed the Audit staffs conclusion. Audit staff does not 

This NOCO was prepared on December 12,2013, and contains the same figures as the NOCO prepared 

on May 8,2013. The May 8,2013 NOCO was included in the Statement of Reasons In Support of 

Final Determination of Entitlement in the Matter of Governor Gary Johnson (LRA #905), dated 

November 14,2013. 

'' GJ2012 and its major vendor, NSON, are discussing the possibility of waiving the interest on debts not 

repaid. If this debt is forgiven, the NOCO will require an adjustment. See Finding 5 for additional 

detail. 
12 

find GJ2012's arguments compelling, and recommends that the Commission make a 

determination that $333,441 is payable to the United States Treasury. 

Legal Standard 

A. Qualified 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 individual becomes a candidate and 

continuing through the last day of the candidate's elij 

§9033.5; 

o Made in connection with the candidate's 

o Not incurred or paid in violation of any fiedi 

where the expense was incurred or paid. 

An expense incurred for the purpose of 

become a candidate, if that individual su| 

regardless of when that expense is 

An expense associated with winding do' 

activity. 11 CFR §9034.4(a)(3). 

ity under 11 CFR 

nomination; and 

law of the state 

.9. 

f'whethci iiii individual should 

itly becomes a candidate. 

CFR §^4.4. 

: cain^l^ and termiti^fing political 

B. Definition of Non-Qualified 

expense is any expense that is not i 

expense (see above). These include, for 

• Excessive ex] 

limitations 

expense. 

• General eli 

costs pursuant to 

lof i 

ciiinpaign 

' ineligibilii 

oflife^eibilitv. or 

candi^^s general 

Civil or 

Election C 

A imjt^uaUfied campaign 

ition (l^^alified campaign 

not llinited to: 

excess of any of the 

'idered a qualified campaign 

itures. Except for winding down 

id certain convention expenses 

ly expenses incurred after a candidate's 

under 11 CFR §9033.5, are not qualified 

any expenses incurred before the candidate's 

'and services to be received after the candidate's date 

services, or facilities used to benefit the 

tion campaign, are not qualified campaign expenses. 

Lties. Civil or criminal penalties paid pursuant to the Federal 

Act are not qualified campaign expenses and cannot be 

defrayed from'^rantributions or matching payments. Any amounts received or 

expended to pay such penalties shall not be considered contributions or 

expenditures but all amounts so received shall be subject to the prohibitions of the 

Act. 

Payments to candidate. Payments made to the candidate by his or her committee, 

other than to reimbtirse funds advanced by the candidate for qualified campaign 

expenses, are not qualified campaign expenses. 

Lost, misplaced, or stolen items. The cost of lost, misplaced, or stolen items may 

be considered a nonqualified campaign expense. Factors considered by the 

Commission in making this determination shall include, but not be limited to. 
13 

whether the committee demonstrates that it made conscientious efforts to 

safeguard the missing equipment; whether the committee sou^t or obtained 

insurance on the items; whether the committee filed a police report; the type of 

equipment involved; and the number and value of items that were lost. 11 CFR 

§9034.4(b). 

C. Matching Funds Used for Non-Qualified Campaign Expenses. If the Commission 

determines that a campaign used matching funds for non-qualified campaign expenses, 

the candidate must repay the Secretary of the United States Treasury an amount equal to 

the amount of matching funds used for the non-qualified campaign jxpenses. 26 U.S.C. 

§9038(b)(2)(A). 

D. Seeking Repayment for Non-Qualified Campaign 

for non-qualifi^ campaign expenses from commi 

payments after the candidate's date of ineligibility, 

committee expenditures to determine at what poi 

matching funds. In doing this, the Commissi 

the date of the last matching funds payment to wl 

assumption that the last payment has been exj 

§9038.2(b)(2)(iii)(B). ' . 

In seeking repayment 

cclved matching fund 

noil w^mview 

immittee accoun^^jdonger contain 

revietVLCommittee extwnditdres from 

pliidate was entitled, using the 

roil aiast-in, first-out basis. 11 CFR 

E. Primary Winding Down Costs During liic Ccneral Elviiiujfii*eriod. A primary 

election candidate who runs in the generl^lcciiciii. icgaidless of whether the candidate 

receives public funds for the general elect^, mii.si wai- iiritt 31 days after the general 

election before using ac^ll'.i-liirig funds f^pinding dpwn costs related to the primary 

election. No expenses incun i-d Iw a primary^ectibn candidate who runs in the general 

election prior to 3-1 clav^fter '.hc^general elecliuii shall be considered primary winding 

down costs. 11 CFR §^^J1((I;. 

F. How .i^i0^erraii!|^.epa]^|li|t Amount for Non-Quaiified Campaign Expenses 

Whep^^ndidate in'^^^us ]P^wiidon<* If a candidate must rruJce a repayment to the 

Unit<^"^t%tes Treasury b^use hi^fher campaign used matching funds to pay for nonqualified c^paign expen^ the ihnount of the repayment must equal that portion of the 

surplus that1^|a the same^tio to the total surplus that the total amount received by the 

payment account bears to the total deposits made to the 

§9038.2(b)(2)(iii). 

candidate from 

candidate's 

G. Bases for Repaylnent. The Commission may determine that certain portions of the 

payments made to a candidate from the matching payment account were in excess of the 

aggregate amount of payments to which such candidate was entitled. Examples of such 

excessive payments include, but are not limited to, the following: 

• Payments or portions of payments made on die basis of matched contributions 

later determined to have been non-matchable 11 CFR §9038.2(b)(l)(iii). 

H. Notification of Repayment Obligation. The Commission will notify a candidate of 

any repayment determinations as soon as possible, but no later than three years after the 
14 

close of the matching payment period. The Commission's issuance of the audit report to 

the candidate (under 11 CFR §9038.1(d)) will constitute notification for purposes of this 

section. 11 CFR §9038.2(a)(2). 

Facts and Analysis 

A. Payment of Non-Qualifled Expenses with Primary Election Funds 

1. Facts 

During an examination of disbursement records, the Audit staffjdentified 

$1,199,701'^ in disbursements for general election expense^^it^itfa primary 

election funds. Of this amount, disbursements totaling ^^2,400 occurred during 

the period between the Candidate's DDI, May S, 2012L^mi^ I days after the general 

election, December 7,2012. During this period, exp^es incurred are not considered 

primary winding down costs. Since these exp^iin^ot related to the primary 

election of the Candidate, they are considered^^-qualified campa^i expenses. 

Lses mus' "c ^.located 

wasspent^. Since these 

In the post-election wind-down period, when 

between the primary and general election campsQ^ns. 

amounts were not allocated between campaigns, the.^diare also non-qualified 

expenses. Additionally, the accoi^^g^taff for GJ2Sl2 stated that expenses 

identified by themselves, or by NStl^lfemeral election dxpSnses were paid from 

the general account, and expenses idfemine^^j^ary ewenses were paid from the 

primary account. Of the expenses id^fiei^Dj^iu: -'an as non-qualified expenses, 

expenses totaling $^g^.8.56 were pai^^of the g^eral accoimt. 

^2012 continiiii^LlP raise funds to pay off the debt 

i\ election, as perilii'^ by law. Approximately $1.2 

l::oii% dcsii^a^^for the primary election were deposited 

1 accoimt, and were used to pay general election 

1 private contributions designated for the primary 

I as in the Statement of Reasons In Support of 

: in the Matter of Governor Gary Johnson (IRA 

After the Ca 

incurred during the ^ 

million iu^t^^aie cont 

into 

Audit! 

fusing the sa 

Finar£)ctciinination i 

#905), dhi^ove 

To determine whje^^eral election expenses were paid using the contributions 

designated for th^pimary election. Audit staff followed the following procedures: 

1. Used the'Tlst of primary and general contributions calculated for the Statement 

of Reasons In Support of Final Determination of Entitlement in the Matter of 

Governor Gary Johnson (LRA #905), dated November 14,2013. 

2. Used GJ2012's disbursement database of disbursements from the primary 

election account. The dates from GJ2012's database were the chedc dates 

The initial amount of non-qualified expenses was subsequently reduced to $1.194,42S after the Audit 

staff calculated the matching funds cut-off date earlier (December 20,2012) than had been previously 

13 

calculated. 

The amount using an end date of December 20,2012 (as explained in the previous foomote) is $2,025. 
15 

rather than the dates that the checks cleared the bank account. Any 

disbursements from the bank statements that were not in GJ2012's database 

were also included by Audit staff in this review. The same procedure was 

followed for the review of the general election account. 

3. For each day analyzed, Audit staff first summed the three different types of 

receipts separately (primary contributions, general contributions and receipts 

of matching funds from the U.S. Treasury). Contributions were considered 

spent on a first-in, first-out (FIFO) basis. If multiple types of contributions 

were received on the same day, the contributions were applied to 

disbursements in the following order: primary, general^atcfaing funds. 

4. The last day that any primary election contributions„^iml^ted for matching 

funds were still in the general election account was December 20,2012. 

Therefore, the calculation of non-qualified ca^jiaign ,;\penses from that 

account ended on that date. 

Following these procedures resulted in the 

GJ2012. *'• 

Pursuant to 11 CFR §9038.2(b)(2)(iii)(B), 

all of GJ2012's accounts would continue until no 

favorable repa; 

the accounts. This "zero-out date' 

completely and accurately calcu! 

matting funds. Audit st^f needed i 

received so that the amounts received 

accurately recorde^, .AMIiongh rhis i 

contribution detail claicd after December 

requested banle^^taii 

aflM the November 

culation for 

non-qualified expenses from 

fimds were left in any of 

1 if these 

la^^fdocumentatii 

after Dumber 31,; 

last contfi^^pn submit 

Thus, the A^ik>staff 

onFebrut.:> !' •. 2014. In order to 

icr nor.-quali: .Ci-^^^ienses were paid with 

aiiiiii tlrom GJ2^^ about contributions 

; aitS general elections could be 

ion wasjcquested, GJ2012 provided no 

2012. In addition, although Audit staff 

the general account were received 

of information is regularly requested 

matching fimds. Without these bank 

it expenditures have been made and caimot 

for the primary or general election. Given the 

was unable to verify the receipts or expenditures 

the Audit staff was able to verify the date the 

for matching funds was deposited to the general account. 

December 20,2012, as the cutoff date for examining the 

This I 

know 

both accounts l-qualified expenses. 14 

In accordance wi'^ 11 CFR §9038.2(b)(2)(iii), the ratio of repayment was calculated 

at 27.9053%.'^ This ratio applied to the non-qualified expenses equals a repayment 

amount of $334,780'®. 

IS 

Audit staffs estimate of the additional amount of possible non^qualified expenses is $16,000, which 

would result in an additional repayment amount of about $4,450. The $16,000 estimate is based on the 

provided bank statements through November 2014, and assumes that all the expenses were paid using 

contributions to the primary election. 

Matching funds certified as of 90 days post-DOl divided by dqiosits for the Primary election as of 90 

days post-DOI ($303,751/$1,088,509=.279053). 
16 

2. Preliminary Audit Report Recommendation 

The Audit staff presented this matter to GJ2012 representatives at the exit conference 

along with schedules detailing the finding. GJ2012 representatives did not conunent 

on this finding. The Audit staff recommended that GJ2012 demonstrate it did not 

make non-qualified expenses or provide any other additional comments it deemed 

necessary. It was further recommended that, absent such evidence, the Audit staff 

would recommend that the Commission determine that $334,780'^ is repayable to the 

U.S. Treasury. 

3. Committee Response to Preliminary Audit Report 

In response to the ^liminary Audit Report, GJ2012 

qualified campaign expenses exceeded die amount of 

$95,585, ".. .no matching funds were used to pay for 

expenses..." In addition, GJ2012 claims that 

totaling $1,220 identified by the Audit staff 

that since 

funds received by 

campaign 

icii campaign expenses 

ilely with unliable general 

election funds. GJ2012 also states that expei|g^ totaling $7,301 id^^ed as being 

unallocated between primary and general aciivues wedyiot paid witl^i:iichihg funds 

but solely with general election funds. ^ 

In each of the instances noted above. GJ2012's ci:!c|fiUion fails to apply the amount 

of private contributions received i-.n.l^mlied towards rcni^ning net outstanding 

campaigri obligations after the Cand^^^'s IX)I. Pursua^^O CFR §9034.4, "...all 

contributions received by an individi% from ihc dale he o/Hie becomes a candidate 

and all matching payments received b^(^iididai^[dl be used only to defiray 

qualified campaigii^^^^..." Therd^C the Au^^taff maintains that both the 

amount of private contrib^^s and the a^unt of matching funds are applied to 

qualified campaign c^ens^p According tl it'.u Audit staff, this calculation continues 

to indicate that mat^^^fui^s weie part of GJ2012's account balaiice until February 

20,2014^gM®Mr to 3mihne the ideiiffii^ non-qualified campaign expenses for the 

generaf pai^^part. with primary election matching funds and are 

supt^t to repa; 

GJ201'2^^Donse al.Mi referei^ newly discovered debts and other debts related to 

the Prirr^^ctivitv. inciiiding a $300,000*' win bonus owed to NSON, and states 

that these ^t^ should he included in the calculation. In doing so, GJ2012 asserts 

that this would iiiove^p the date on which Federal matching funds were no longer in 

" Tlie ratio applied to the Audit staffs revised non-qualified expenses using an end calculation date of 

December 20,2012 (as explained in footnote 12) is $333,307. 

" See footnote 16. 

" GJ2012 further states that the bonus is a qualified campaign expense, however, pursuant to 11 CFR 

§9034.4(a)(S)(ii). monetary bonuses must be paid no later than thirty days after the date of ineligibility 

to be considered quaiified campaign expenses. These bonuses have not been paid, therelbre, the 

$300,000 bonus owed to NSON is a non-qualified campaign expense, and as such, is not reflected in the 

NOCO (Finding 1). 
17 

the account, thereby reducing the repayment amount.'' The Audit staff notes that 

debts are not part of the calculation of non-qualified expenses. Expenditures 

considered in a repayment determination under 11 CFR 9038.2(b)(2(ii) and (3) 

include all non-qualified and undocumented expenditures incurred and paid between 

the campaign's date of inception, and the date on which the candidate's accounts no 

longer contain any matching funds. Outstanding debts and newly discovered debts 

are not included in the repayment calculation. 

Finally. GJ2012's response noted an expense incorrectly classified by Audit staff as a 

general election expense instead of a primary election expensqa^The amount of 

identified non-qualified campaign expense has been adjustq|^$q,considered as a 

qualified campaign expense and accordingly, the Audit siaii has reduced the total 

repayment amount by $1,116 ($4,000 x 27.9053%). 

The Audit staff recommends that the Commissi' 

$332,191 is repayable to the U.S. Treasury. 

B. Receipt of Matching Funds Based on In 

a determinaiion that 

tions 

1. Facts 

During an examination of receiptsHii <iudii fieldwork. liiegmdit staff identified five 

contributions designated to the general election totaling I^^O^that were submitted 

for matching funds. These contributions were iif^ible t^^ matched for primary 

election funds. The amount of matchi%fpd§ a^iUxied'for these ineligible 

contributions was $1,230. ^ 

2. Preiiminai^Aiidit Repojg^Recomment 

The Audit staff preHmied '.his niaiter to GJ^T2 representatives at the exit conference 

along with schedules clelailing the lii|ft^GJ2012 representatives did not comment 

on th^ rinding. I^Aiidii sliitt recommended that GJ2012 show that the 

tions weaken general clec^on contributions or provide any other additional 

Inc.-iis it deemed necessary'. It was further recommended that, absent such 

evidcnce.ahe Audit siji^ould'make a recommendation that the Conunission make a 

I that $1.2p is repayable to the U.S. Treasury. 

3. Committee l|bpf^se to Preliminary Audit Report 

In response to th^eliminary Audit Report recommendation. GJ2012 stated that it 

was investigating whether or not these contributions were ".. .accidentally attributed 

to the wrong spouse." If the Committee's investigation determines that the 

contributions were, in fact, ineligible. Counsel states that GJ2012 would refund the 

appropriate amount to the U.S. Treasury. 

19 Non-qualified expenses paid after the candidate's accounts are presumed to have been purged of ail 

matching funds are not subject to repayment since the candidate's accounts contained no matching 

funds. 
18 

The Audit staff recommends that the Commission make a determination that $1,250 

is repayable to the U.S. Treasury. 

Finding 3. Use of Creneral Election Contributions for 

Primary Election Expenses 

Summary 

During audit fieldwork, the Audit staffs review of GJ2012's receipts and disbursements 

during, the pre-DOI period indicated that GJ2012 spent $12,396 in general election 

receipts on primary election expenses prior to the Candidate's: 

In response to the Preliminary Audit Report, GJ2012 state4l!t|^e use of general 

election receipts for primary election expenses was an a^ncel^^t anticipated 

matching funds. The Audit.staff notes that short-termS^^ces ag^g matdiing funds 

must come fix)m a qualified fmancial institution, sbcured by cMii'icd matching 

funds amounts. > ^ 

Legal Standard ^ ^ 

Receipt of General Election contributions before Iby'^datc of the Primary Election. 

(l)If die candidate, or his or her auth§ri/cd conunittee(.s}, receives contributions that are 

designated for use in connection with ihc 

prior to the date of the primary election, 

acceptable accoimting method to disi 

primary election and con^udons receiw 

accounting methods m^ral^P^^re not li 

(i) The designation:.i^raarate^oimts for 

(ii) The establishmerir^lepar.iic books and 

election pSrsuarii to 11 CFR §110.1(b) 

or such committee(s) shall use an 

luiSons received for the 

lection. Acceptable 

election, caucus or convention; or 

for each election. 

l^aph (e)(1) of this section, an authorized 

ite that, prior to the primary election, recorded cashto t^w^cess of the sum of general election contributions 

elf^on disbursements made. 11 CFR § 102.9(e). 

Facts and 

A. Facts 

During audit fieldwqM^, the Audit staff reviewed available receipt and disbursement 

records to determine what contributions, if any, were designated per contributor 

solicitation devices to the general election and then spent by GJ2012 on primary election 

expenses prior to the primary election date (May 5,2012). Committees are not permitted 

to spend ^nds designated to the general election for primary election expenses prior to 

the primary election date. If general election funds are held in the primary election 

account, the general election funds should be held in reserve and not spent for primary 

election purposes. 
19 

Prior to the primary election, GJ2012 received a total of $22,396 designated to the 

general election that was deposited in the primary election account. The Audit staff 

determined the private contributions designated for the general election using the same 

calculations as were employed in the Statement of Reasons In Support of Final 

Determination of Entitlement in the Matter of Govemor Gary Johnson (LRA #905), dated 

November 14,2013. Of this amount, a total of $10,000 was deposited to the general 

election account by September 6,2011. Beginning on February 21,2012, GJ2012 did not 

maintain enough contributions designated to the primary election to pay for all of its 

primary expenditures, and used contributions designated to the general election to make 

up the difference. The Audit staff's review identified $12,396 in sgntributions designated 

to the general election that were spent on primary election exp^^^ot to the primary 

election date. These expenditures were identified as primar> L^'.lon expenses as they 

were bank fees incurred prior to the Candidate's DDI an^.-.ynentt on invoices 

submitted for various services incurred in coimection wi1%he Caiulid|te's campaign for 

nomination. In addition, no invoices for any servi(%^k|^Sed in c^nicilun with the 

general election were received prior to the paymg^f these expenses. 

B. Preliminary Audit Report & Audit Division'Woii 

The Audit staff presented this matter to GJ2012 reiucscniafives'at the exit (inference and 

provided schedules detailing the payouts made using election funds for primary 

election expenses prior to the caiulidaiu't DO! for the audl^ i.ycle. GJ2012 

representatives did not comment on dii.t I ItidjiiTg. ^ 

The Audit staff recommended that GJ201i 

general election contrij^^T^ were not use 

accordance with ll^^l^l()2.9, { 

accounting method^^s used, ^^ent such a ( 

additional comments ii cniisiilered Ilcec^sary 

lyjdc (^-umeritation to demonstrate that 

primary election activity. In 

should demonstrate that an acceptable 

stration, GJ2012 was to provide any 

'respect to this matter. 

C. Comipillce Kv.s 

In res^nse to the 

$12i'39i^^s treated as 

election Unlributions to 

••m 

^ jary 'iCiidit Report 

idii Kqiort recommendation, GJ2012 stated that the 

'ancc aizainst anticipated matching fimds from the general 

Imafy election. 

To the extent ttM||^J2012 ll'^characterizing the advance of general election funds as a 

loan to the primai^a^ld^t, it is noted that regulations specify that such loans or 

advances must come'irom a qualified financial institution, which the general account is 

not. It is also noted (liat short term loans to Presidential primary committees were 

obtained in the past, however, these loans were secured by matting fund amounts 

certified and expected to be received by the committees and occurred only when the 

Presidential Campaign fund was in a shortfall position. Matching fimds for GJ2012 were 

not certified until May 25,2012 and the Presidential Campaign fund was not in a shortfall 

position in 2012. In no instances were general election contributions permitted to be used 

for primary election expenditures. 

GJ2012 stated that they ".. .used an acceptable accounting method in accordance with 

11 CFR §102.9," and that there were separate accounts for primary and general election 
20 

contributions. As explained in the "Committee Structure" section on pages 1 and 2 of 

this report, in practice. GJ2012 deposited nearly all receipts before DOI in its designated 

primary account and nearly all receipts after DOI in its designated general account. 

GJ2D12 further stated that Audit staff based its calculation on cash on hand and did not 

take into account the delay in deposits collected through credit card processors. These 

would be considered received, but would not be in GJ2012's bank account immediately. 

In fact, as this is a common occurrence with campaign committees, the Audit staff took 

this deposit delay into account. The Audit staff used GJ2012's contributions database for 

this calculation, which uses the date of contribution rather than the^ate of deposit. 

Finding 4. Reporting of Debts and O' 

indicated that 

c D ^(Debts 

Summary 

During audit fieldwork, the Audit staffs review (^iJ2()t2'"s disburse 

debts from seven vendors totaling $407,455 wq^^^ot disclosed on Sc 

and Obligations), as required. 

In response to the Preliminary Audit Report, GJ2012 .^iubiriitted additional invoices for 

debts to two vendors that were not pf&^usly disclosed ic .A idit staff. This resulted in a 

total of $447,567 in debts owed to nui^p'idn:^ that were i.t'-^dpsed on Schedule D-P 

as required. GJ2012 amended its repor^o ru,'..;riiilly correc^enisclosure of debts and 

obligations on Schedule D-P. 

Legal Standard 

A. Continuous] 

and nature of outstw3^ 

52 U.S.C. §30104(b)(8)1 

104.11(a)., 

ebtsi 

W 

A polWcal committee must disclose the amount 

1 obligation^ntll those debts are extinguished. 

.S.C. 4J4S)(8)) and 11 CFR §§ia4.3(d) and 

B. Seialtoate Scheduk 

owdd 6^^ to the ( 

conditions^^er which i 

11CFR§1( 

. poli!S^@dhmiittee must file separate schedules for debts 

witlWistatement explaining the circumstances and 

and obligation was incurred or extinguished. 

C. Itemizing Debli^df Obligations. 

• Once it has b,i^ outstanding 60 days from the date incurred, a debt of $500 or 

less must be reported on the next regularly scheduled report. 

• A debt exceeding $500 must be disclosed in the report that covers the date on 

which the debt was incurred, except reoccuning administrative expenses (such as 

rent) shall not be reported as a debt before the payment due date. 

11 CFR §104.11(b). 
21 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff used available disbursement records to reconcile 

the accounts^^ of GJ2012's vendors^'. These vendors provided GJ2012 with various 

campaign management services such as fiindraising, accounting, clerical and 

administrative staff, and travel arrangements. 

The Audit staff identified debts to seven of GJ2012's vendors tot^mg $407,4SS that were 

not reported on Sdiedule D-P as required. Of these debts, $30i^j^^^;is owed to NSON 

for a bonus after the Candidate received the nomination as ilij Libertarian Party candidate 

for the Presidential general election. This bonus was incii|rocl. per^ontract, as of the date 

of nomination. May 4,2012, and should have been renpf^ on tS^gl2 June Monthly 

report, covering the time period from May 1,2012 th^hghMay 3irloi 2. 

It should be noted that GJ2012 was invoiced lur hiilf of 

December 21,2012, and reported it on the 2012 Year L 

staff maintains the debts should have been reported d; 

on the date and terms of the oontract.y[he remaining 

for smaller amounts to all six vendorsM^tified by the 

,debt($150,C 

Howeve^ffie Audit 

le entire amount based 

lie debts of $107,455 were 

B. Preliminary Audit Report & Audit 

The Audit staff presented this matter to Gl 

provided schedules 

the audit. In respoiiicTo the 

for the other half df ihc 

dated January 1,2013. 

this $150,1 

Thei 

es at the exit conference and 

I for eaM reporting period covered by 

J2012 submitted one additional invoice 

rcTurenced in th^^Acts" section above. This invoice was 

ihc dateihe Prelimihary Audit Report was sent to GJ2012, 

:erence,i 

>cIr«cJ ill: =:i.v iL-Dorts filed with the Commission. -awaf- -

: staff recominciidcd ihai CiJ2012 provide documentation demonstrating that 

litures did not require reporting on Schedule D-P. Absent such 

documen^^n. the Audii ^luilf recdWiended that GJ2012 amend its reports to disclose 

the outstant^ debts. 

C. Committee Preliminary Audit Report 

In response to the Pi^minary Audit Report recommendation, GJ2012 amended its 

reports and submittdii additional invoices and documentation for other previously 

undisclosed debts. Adjustments made by the Audit staff based on the additional 

documentation provided reduced the original determination of debts and obligations not 

timely reported amount by $7,758. 

TM The reconciliation consisted of calculating invoiced and paid amounts for individual reporting periods in 

the 2011-2012 campaign cycle. The Audit staff then determined whether any outstanding debts were 

correctly disclosed on Sch^ule D-P. Each debt amount was counted once, even if it required disclosure 

over multiple reporting periods. 

Audit staff restricted this review to only primary campaign debts, as per the scope of this Audit. 
22 

GJ2012 submitted additional invoices from two new vendors that were not previously 

provided to the Audit staff, nor disclosed on Schedule D-P, for debts incurred within the 

audit period totaling $47,870. In combination with the seven vendors noted in the 

Preliminary Audit Report, the Audit staff has thus identified nine vendors that GJ2012 

owed $447,567 that was not reported on Schedule D-P as required. GJ2012 filed 

amendments that materially corrected these omissions. 

In its initial response to the PAR, GJ2012 disputed that the $300,000 owed to NSON for 

a bonus was not timely reported. GJ2012 states that the NSON cc^act".. .specifically 

states that invoices are due and payable upon receipt," and thai ihi^^dor not invoicing 

timely does not create a reportable debt, since the campaign lAuiiid not be able to base the 

debt reporting on an invoice. 

Pursuant to 11 CFR §104.11(b), "[a] debt or obligag^llM^dluding a loa^written contract, 

written promise or written agreement to make aiy^enditure.. .shall bd^^rted as of the 

date on which the debt or obligation is incurred..." GJ20t^made a writt^^a^ment on 

October 14,2011, that NSON would be owed a bfijW of *^1^,000 for rec^mg any 

party nomination as either VP or President." Thus,'^^f^t w^ incurred on the date of 

the Candidate's nomination by the 

and should have been reported as a 

Monthly Report that covered May 1 

was invoiced. 

In a supplemental i 

judgment that the i 

Candidate's nomi 

to its reports to report this obliii 

Party 

ligation on 

May 31, 

/ention on May S, 2012, 

I D-P on the June 

12. regardless of when it 

r 

PAR, GJ2 

lus shoulc 

bt having 1 

Ion a-t orMa\ 

if 

stated tiiir. it has deferred to Audit staffs 

report^ as of the date of the 

ivoiced^^. GJ2012 filed amendments 

12. 

I Findia^ 5. Exjensio^spf Cr^it by a Commercial Vendor 

Suiuni 

During 

that NSON 

idwork, tlic Audit staffs review of GJ2012's disbursements suggested 

\ a prohiipBd contribution to GJ2012 by extending credit beyond its 

••y-

^ GJ2012 further stated that they, "in conjunction with NSON. reallocated prior payments to NSON to this 

earlier Primary expenditure to ensure that payments were made on a First in-First out basis." The Audit 

staff believes that GJ2012 cannot reallocate these payments in such a manner. It appears that GJ2012 has 

decided to apply this procedure in an attempt to reduce the amount of repayment to the U.S. Treasury as 

detailed in Finding 2. However, this "re-allocation" of payments would still not result in the win bonus 

being paid within the statutory 30 day period (see fbomote 13 for additional detail), so this remains a 

non-qualified expense regardless of die accounting convention used. In fact, to alter the accounting 

method to pay this debt off would result in additional non-qualified expenses paid using matching funds, 

which would actually result in an even larger repayment to the U.S. Treasury. 

^ NSON is a registered corporation in the state of Utah that also does business as Political Advisors. 

GJ2012 reported disbursements to Political Advisors, but all contracts and invoices were received from 

NSON. 
23 

normal course of business and not making commercially reasonable attempts to collect 

$1,752,032 from GJ2012 for services rendered. 

In response to the Preliminary Audit Report, GJ2012 presented an affidavit from the 

proprietor of NSON and redacted contracts to dispute the Audit staffs suggestion that 

NSON made a prohibited contribution to GJ2012. However, neither GJ2012 nor the 

vendor presented any documentation to demonstrate that other clients were subject to the 

same billing practices, or that GJ2012 was regularly and timely billed for services 

rendered. 

Legal Standard 

A. Contribution defined. A gift, subscription, loan made in accordance 

with 11 CFR §100.72 and §100.73), advance, or dep^ of or anything of 

value made by a person for the purpose of influ^^^^y electic^^pr Federal office 

is a contribution. The term "anything of val^^cludes all in-kin^oniributions. 

The usual and normal charge for a servic^ i^ ihc comn^sidly reasonable rate that 

one would expect to pay at the time the servicc.s wcTc ^iud^ed. ^ 

The provision of services at a cht^'c lcs.<> than the usi^i and normal charge results in 

an in-kind contribution. The value of such a contribution be the difference 

between the usual and normal charger ilici '.i .s and i:.c amount the political 

committee was billed and paid. 11 C]^§^ 

B. Corporate Contribulions li permissible A coipmation is prohibited from making 

any contribution in.0onnecti| with a fed^l election. 52 U.S.C. §30118(a) 

(formerly 2 U.S.C.^ 

idor. A^mmercial vendor is any person who 

iidate or political committee and whose usual and 

frontal, lease or provision of those goods or 

D. Extension ffl^redit I^Commercial Vendor. A commercial vendor, whether or not 

it is a corporati^i^rp^xtend credit to a candidate or political corrunittee provided 

that: 

• The credit is extended in the vendor's ordinary course of business (see below); 

and 

• The terms of the credit are similar to the terms the vendor observes when 

extending a similar amount of credit to a nonpolitical client of similar risk. 

11 CFR § 116.3(a) and (b). 

E. Definition of Ordinary Course of Business. In determining whether credit was 

extended in the ordinary course of business, the Conunission will consider whether: 
24 

• The commercial vendor followed its established procedures and its past practice 

in approving the extension of credit; 

• The commercial vendor received prompt, full payment if it previously extended 

credit to the same candidate or political committee; and 

• The extension of credit conformed to the usual and normal practice in the 

commercial vendor's industry or trade. 11 CFR §116.3(c). 

Facts and Analysis 

A. Facts ^ 

During audit fieldwork, the Audit staffs review of GJ2012's d^^^lments suggested 

that NSON made a prohibited contribution to GJ2012 by c^:: J:;-.g credit beyond its 

normal course of business and not making commercially^ispr:.^ attempts to collect 

$1,752,032 from GJ2012 for services rendered relating, t^e prL^ry election^. 

On October 14,2011, GJ2012 entered into a conif^ with NSON to manage the 

campaign. NSON handled fundraising, press^rul inuilia 

and all administrative functions of the primary elect i 

NSON totaled 86% of the total of all disbursements 

of GJ2012's outstanding debt as of Dc^mber 31,201 

21,2011 through December 21,2012]''^j@N invoiced G 

management expenses, including fimdr^^reilteEical work, 

of March 31,2013, $1,752,032 had been (^iitsl 

remains outstanding. To d^, GJ2012 has' 

$2,198,204 invoiced b 

The terms of the C&nf^ bet 

NSON I 

not ni^ 

withhSH^rom Client anj 

account.'^ 

ions, creative ^p^ising, 

. Disbursf^^to 

12, and accounted for 89% 

iwedtoNSON. From April 

98,204 for campaign 

vel arrangements. As 

thafi'120 days, and $936,247 

of $1,261,957 for the 

,^10N stated that: 

iM ciuhi^ percent (18%) per annum on payments 

of the date of the invoice. NSON may, at its sole 

services hereunder should Client not pay in 

reserves the right, at its sole discretion to 

of NSON's services pending payment on Client's 

NSON had not at 

not locate any 

the records provi 

interest charges as of March 31,2013. Audit staff also did 

ion of attempts by NSON to collect on the outstanding debt in 

•y GJ2012. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to GJ2012 representatives at the exit conference and 

provided schedules detailing the extensions of credit for primary election expenses. 

Audit staff requested that GJ2012 provide evidence that NSON made commercially 

reasonable.attempts to collect the outstanding amount. In response to the exit conference, 

on January 17,2014, GJ2012 submitted an accounts receivable aging schedule for other 

^ Audit staff restricted this review to only primary campaign services, as per the scope of this Audit. 
25 

clients of NSON to show that credit was extended on similar terms to other committees, a 

copy of a lawsuit filed by NSON in the state of Utah against another client, and a bill 

dated December 31.2013, for $245,527 in interest on the outstanding debts from GJ2012 

to show that NSON was attempting to collect on the outstanding debt. The aging 

schedule detailed the outstanding amounts from nine clients, including another political 

committee also associated with the Candidate. Six of these clients had debt outstanding 

more than 300 days, and 84% of the total debt outstanding on the aging schedule was 

owed by the political committee. 

GJ2012 quoted an NSON response to a query the Committee had made to this vendor. 

Ongoing attempts have been made and continue to be 

outstanding debt owed fiom the Gary Johnson 2012 

include support and help with continued solicitation 

ail other legal remedies are and will be considered 

The Audit staff reviewed the documentation si 

Although GJ2012 provided an internally gem 

lawsuit filed, GJ2012 did not provide any com 

NSON. As such, the Audit staff cannot verify with 

contract with GJ2012 was offered on^ same terms of 

other NSON clients, political or non-^iW??.l 

In addition, on June 18,2014, GJ2012 

charged by NSON on debts oiitsuuiding 

collect the 

These 

Aiy and 

the oliliiTii 

The Audit staff 

from this vendor 

business and did not 

informatii 

similars^ and ri: 

in response to th^e^ conference, 

g ^edule and a c<^^' a 

ices to, oth# clients of 

lie certainty that NSON's 

in the same manner as 

ivoices for interest 

igh June 2014. 

iyGJ2012^ 

the credit 

ide documentation, to include statements 

was in the normal course of 

It an uxcc<s!ve iii-^d contribution by the vendor. The 

ly ificliiclc examples of other non-political customers/clients of 

ir which s^lar services were provided and similar billing 

I were used. .Also, should provide information concerning the 

sguards suclyis bill^^policies for similar mon-political clients and work, 

advance pg^OTt policies.Md debt collection policies and practices to show that this was 

normal busii^^j^ctice fc^^SON or provide additional explanation about the situation. 

C. Committee Re%^^ to Preliminary Audit Report 

In response to the Pr^iminary Audit Report recommendation, GJ2012 provided 

additional information about the business practices of NSON. In an affidavit, Ron 

Nielson, the proprietor of NSON, stated that his company did not extend credit to GJ2012 

that it would not have extended to a similar non-political campaign. Mr. Nielson stated 

that NSON exercises discretion in the assessing and collecting of finance charges in order 

to collect on the principal, and that NSON has previously waived fmance charges in favor 

of collecting on Ae principal. In addition, Mr. Nielson stated that NSON has engaged in 

discussions with GJ2012 to accq>t campaign assets in lieu of payment. 
26 

GJ2012 also submitted redacted contracts that NSON used for other political and nonpolitical campaigns. The non-redacted portions of these contracts are substantially 

similar to the one signed by GJ2012. Counsel for GJ2012 further states that NSON acted 

according to normal and usual practice in the industry, and that NSON and its 

competitors frequently extend credit to clients seeking similar services in anticipation that 

doing so would enable the clients to raise funds. 

In addition. Counsel for GJ2012 stated that NSON and GJ2012 were negotiating for the 

acceptance of campaign assets in lieu of parents owed, and that NSON may waive 

interest fees "as is routine in such matters." 

The NSON contracts provided by GJ2012 are redacted to the^^ent that the Audit staff 

cannot verify whether or not the clients are political or nc^^^^l. Since the nature of 

these entities caimot be verified, the Audit staff does ^t^d thesea^ntracts to be 

adequate evidence that credit was extended to GJ2U^&^^ same other political 

and non-political clients. ^ 

Furthermore, documentation provided by GJ^O 121^1 low^ 

collect on outstanding debts did not show that "NS< 

services..." In fact, GJ2012 was not^oiced for ser\ icc^ 

even more than a year after the .^cn icc» \\ crc performed. 

for interest due on amounts owed iiniil ncccdibcr 11,2013, 

Candidate's date of ineligibility, for invdt^s iluii had been 

to twenty-two (22) months. In addition, i^^mcntaiif: 

political clients has beCTlH^^ted to show^p NSON 

amounts due by non-^iticaicl^ts in the s%e manner. 

NSON atter^icd to 

ly invoiced CH2012 for all 

p some cases until months or 

.'iON did not submit invoices 

, .i,oj0^an a year after the 

oiptanding for thirteen (13) 

as invoices to other nonalso treated the collection of 

Pursuant to 11 CFR §<^01 

NOCO all ^^^sets 

value exo^sS^H^md i 

assets.^^e NOCO s^l 

any<Iisti;^|^ided to the: 

GJ2012 si^it documental 

Commission.'^l 

ntsi 

I for 

tial cari-.paigns are required to report on the 

^exceeded $2,000, and other assets whose 

1 a list of these items. GJ2012 did not disclose any 

: when applying for matching funds, nor were 

; fieldwork. The Audit staff requests that 

ly assets owned and not. previously disclosed to the 

The Audit staff no^y^t^SON had billed GJ2012 $345,333 in interest as of October 

15,2014, and the Aiilit'staff has estimated that $85,893 in additional interest will be 

billed by NSON to GJ2012 by June 30,2015. Both of these amounts are reflected in the 

NOCO in Finding 1 of this report. 

If GJ2012 and NSON come to a mutual agreement on debts less than the amounts owed 

and the debt settlement plan is reviewed and approved by the Commission, then the lower 

amount owed would necessarily reduce the total liabilities on the NOCO statement and 

" If GJ2012 and NSON come to an agreenient to settle the Committee's debts for less than has been billed, 

GJ2012 will need to file a debt settlement plan and seek Commission review of this settlement, pursuant 

to 11 CFR §116.7. 
27 

likely result in the receipt of matching funds in excess of the Candidate's entitlement. 

Further repayment may also result if GJ2012 discloses newly-discovered assets.^^ 

26 Also note the repayment amount for non-qualified expenses identified in Fmding 2 would also require 

adjustment. 
FEDERAL ELECTION COMMISSION 

WASHINGTON. D.C. 20463 

MEMORANDUM JUM Q 3 206 

TO: Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

FROM: Lisa J. Stevenson 

Deputy General Counsel -

Lorenzo Holloway ^ 

Assistant General Counsel 

Compliance Advice 

Joshua Blume "^3?) 

Attorney 

SUBJECT: Audit Division Recommendation Memorandum on Gary Johnson 2012, Inc. 

(LRA#905) 

1. INTRODUCTION 

The Office of the General Counsel ("OGC") has reviewed the Audit Division 

Recommendation Memorandum ("ADRM") on Gary Johnson 2012, Inc. ("the Committee"). 

The ADRM also includes the Draft Final Audit Report ("DFAR") on the Committee, which was 

sent to the Committee on March 26,20IS, and to which the Committee responded on April 14, 

2015. The Committee requested, and the Commission granted, an audit hearing, which was held 

on May 13,20IS. Following the hearing, the Committee requested, and the Commission 

granted, leave to file supplemental comments on Finding 2 of the DFAR, conceming the 

Committee's repayment obligation. We received these supplemental comments on May 22, 

20IS. See Gssy Johnson 2012, Inc. Audit Hearing Supplementary Information, dated May 22, 

201S ("Supplemental Comments"). We concur with the ADRM, and offer supplemental 

comments on issues raised by the Committee in its written response to the DFAR, during the 

audit hearing,' and in the supplemental comments. 

' In its response to the DFAR, the Committee requested and was granted an opportunity to comment on 

Finding 2 during the audit hearing. We note that the Commission's Procedural Rules for Audit Hearings provide 

audited committees with an opportunity for a hearing when the audit report finds violations of the Federal Election 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA # 905 

Page 2 

II. FINDING 2 - AMOUNTS OWED TO THE U.S. TREASURY 

Finding 2 recommends that the Committee repay a total of $333,141 to the United States 

Treasury. Approximately 99.7 percent of this total amount, or $332,191, represents a repayment 

ratio of the total amount of funds spent by the Committee on non-qualified campaign expenses.^ 

See 11 C.F.R. § 9038.2(b)(2)(iii) (setting forth formula for computing amount to be repaid) 

("repayment ratio"). 

The Committee argues in its response to the DFAR, and in its supplemental comments, 

that the Commission's use of the repayment ratio to calculate the Committee's required 

repayment amount is not a reasonable method for determining the extent to which public funds 

were used to pay non-qualified campaign expenses. Committee Response to DFAR, dated April 

14,2015; Supplemental Comments. See Kennedy for President Committee v. Federal Election 

Commission, 734 F.2d 1558, 1563 (D.C. Cir. 1984). The Committee contends that it maintained 

two separate accounts dedicated to the primary election and to the general election, respectively. 

The Committee contends it deposited all of the public funds it received into its primary account; 

however all of the spending on non-qualified campaign expenses analyzed by the Commission in 

Finding 2 was disbursed from the Committee's general account, which contained private 

contributions for the primary election. 

The Committee's argument again raises the issue of whether private primary 

contributions maintained in an account that is separate from the account used to hold the public 

funds must be included in the formula to determine the ratio repayment calculation. We 

conclude that the private funds maintained in a separate account must be included in the 

repayment ratio. 

First, the Commission's regulations are clear on this point. The repayment ratio must 

include "total deposits." 11 C.F.R. § 9038.2(b)(2)(iii). "Total deposits" is defined as "all 

deposits to all candidate accounts minus transfers between accounts, refunds, rebates, 

reimbursements, checks returned for insufficient funds, proceeds of loans and other similar 

Campaign Act of 1971 ("FECA"), as amended, or Commission regulations. See Procedural Rules for Audit 

Hearings, 74 Fed. Reg. 33140, 33142 (July 10,2009). A repayment determination under title 26 of the United 

States Code is not, however, a statement of a violation of the FECA. See Reagan Bush Committee, el al. v. Federal 

Election Commission, 525 F. Supp. 1330, 1337-1339 (D.D.C. 1981) (distinguishing repayment determinations made 

pursuant to an audit under Presidential Election Campaign Fund Act ("PECFA"), 26 U.S.C. § 9007, from title 52 

enforcement process for addressing alleged violations of the FECA or the PECFA). The Committee will, if it 

chooses, have the opportunity to request an oral hearing on the repayment determination once the Commission has 

notiFied the Committee of that determination in the Final Audit Report. See 11 C.F.R. § 9038.2(c)(2Xii). 

^ A "qualiFied campaign expense" is defined as a purchase, payment, distribution, loan, advance, deposit, or 

gift of money or anything of value incurred by or on behalf of a publicly-financed candidate or his or her authorized 

committee through the candidate's date of ineligibility ("DOI") that is made in connection with the campaign for 

nomination and is not made in violation of Federal or State law. 11 C.F.R. § 9032.9. See also 26 U.S.C. § 9032(9). 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA » 905 

Pages 

amounts." 11 C.F.R. § 9038.3(c)(2) (emphasis added). There is no exception here for a separate 

account that solely holds private contributions.^ 

Second, the Commission's decision to include "all deposits to all candidate accounts" (11 

C.F.R. § 9038.3(c)(2)) is consistent with the court of appeals decision in Kennedy for President 

Committee v. Federal Election Commission, 734 F.2d 1SS8 (D.C. Cir. 1984). The Kennedy 

decision vacated an earlier Commission regulation which presumed that 100 percent of a 

committee's spending on non-qualified campaign expenses was made with public funds. 

Kennedy v. Federal Election Commission, 734 F.2d at 1559-1560 ("The Commission's 

regulation, however, on its face and as applied to the Kennedy for President Committee in this 

case, indulges the unreasonable presumption that all unqualified expenditures are paid out of 

federal matching funds.") (emphasis in original). The Kennedy decision held that this approach 

was ultra vires because the controlling statute limits the repayment determination to the amount 

of public funds so spent. See Kennedy, at 1561; jee also 26 U.S.C. § 9038(b)(2) (Commission 

repayment determination limited to "any amount of any payment made to a candidate from the 

matching payment account"). Thus, the Court held that the Commission is required under the 

Act to make a reasonable determination that the repayment sum reflects the public funds used for 

non-qualified purposes. See Kennedy, at 1562. 

At the same time, because public funds and private funds "are commingled in the 

candidate's coffers," the Kennedy court acknowledged that the repayment determination may 

never be perfectly accurate. Id. The court noted that 26 U.S.C. §9038(b)(2) delegates to the 

Commission the task of estimating the proportion of total spending for non-qualified purposes 

that is attributable to the use of public funds, but does not specify a particular method for doing 

so. Thus, the Commission has discretion to design an approach that will enable it to adhere to 

the statutory mandate as the Kennedy court conceived it. Id. at 1563. 

That approach is embodied in the repayment ratio at 11 C.F.R. § 9038.2(b)(2)(iii). The 

Explanation and Justification for the Final Rule promulgating this regulation, shortly after the 

Kennedy decision, explicitly refers to the Kennedy decision as the basis for the new regulation, 

and it is the Commission's adoption of the method that must be used to determine the amount of 

public funds used for non qualified campaign expenses. See Explanation and Justification for 

Final Rule on Repayments by Publicly Financed Presidential Candidates, 50 Fed. Reg. 9421 

(Mar. 8, 1985) ("The use of such formulas is consistent with the court's opinion, which does not 

require a mathematically precise determination of the amount of the Federal funds spent 

improperly but only a reasonable determination of the amount of Federal matching fUnds so 

used."). Section 9038.2(b)(2)(iii) contains a general formula that the Commission is to use in all 

cases in which it seeks repayment for non-qualified campaign spending. See 11 C.F.R. § 

9038.2(b)(2)(iii) (repayment ratio to be used to determine amount of "any repayment sought"). 

' This regulatory language, as well as the Commission's application of that language In other regulatory 

contexts and in previous audit reports, discussed below, demonstrates that the Commission has continuously 

considered a publlcly-fiinded committee's public and private ftinds to be commingled as a matter of law under the 

authority of the Kennedy decision. 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA ft 90S 

Paged 

Third, the Commission has reiterated the principle of considering "all deposits to all 

candidate accounts" in calculating the repayment ratio in several contexts. In promulgating the 

regulations, the Commission has stated that it considers all funds in a publicly funded 

committee's accounts to be commingled. See Final Rule and Explanation and Justification 

Regarding Public Financing of Presidential Primary and General Election Candidates, 56 Fed. 

Reg. 35898, 35905 (July 29,1991) (citing Kennedy for President Committee, 734 F.2d 1558, 

1565 mil)." 

The Commission maintained this principle when it revised the regulations. In revising 

section 9038.2(b)(2), the Commission could have segregated the private contributions received 

after the candidate's DOI and not applied the repayment ratio to those private contributions. 

Explanation and Justification for Final Rule on Public Financing of Presidential Primary and 

General Election Candidates, 60 Fed. Reg. 31854,31870 (June 16,1995). The Commission, 

instead however, revised section 9038.2(b)(2) to capture the private contributions received after 

the candidate's DOI and to "more accurately reflect[] the mix ofpublic funds and private 

contributions received during the campaign, particularly for a candidate who receives 

significant amounts ofprivate contributions after his or her date of ineligibility. By taking 

private contributions received within 90 days of DOI into account when determining a 

candidate's repayment ratio, the new rule will likely reduce the ratio, thereby reducing the 

amount of the candidate's repayment."^ Explanation and Justification for Final Rule on Public 

Financing of Presidential Primary and General Election Candidates, 60 Fed. Reg. 31854,31870 

(June 16,1995) (emphasis added). 

The Commission has also maintained the "all deposits to all candidate accounts" 

principle in audits. In previous audits, the Commission has stated that a committee's public 

* The Committee incorrectly states that the Audit Division's calculated repayment ratio includes total 

deposits into both the general and the primary accounts. Supplemental Comments, at 5. However, the Audit 

Division's calculation excludes contributions designated for the general election and deposited into the Committee's 

general election account from the repayment ratio calculation. The Audit Division included only the contributions 

designated for the primaiy election ^at were deposited into the general election account. We agree with this 

approach because only an analysis of the total funds a committee has available to spend on a primary election, as 

opposed to a general election, is relevant to a determination relating to matching funds. See OGC Comments on 

Preliminary Audit Report on Gary Johnson 2012, Inc. at 6-7 (Oct. 24,2014). 

' A similar situation, in which the Commission could have opted to separate public funds and private 

contributions based on the accounts holding those funds relates to repayments in the general election financing 

system. In the general election financing system, publicly funded presidential candidates are not allowed to raise 

private contributions. 26 U.S.C. § 9003(b)(2). However, there are two exceptions to this rule. First, major party 

candidates receiving public funds may raise private contributions to the extent necessary to compensate for a 

deficiency in the government fund used to disburse public funds to the candidate. 11 C.F.R. § 9003.3(b)(1). 

Second, minor and new party presidential candidates may supplement their receipt of public funds with private 

contributions to defray qualified campaign expenses exceeding the amount of public funds disbursed by the 

government fund. 11 C.F.R. § 9003.3(c). In both cases, candidates receiving both public and private funds may opt 

to deposit them into separate accounts, or may deposit both types of fund into the same account. 11 C.F.R. §§ 

9003.3(b)(2), (c)(3), 900S.2(c). Although both regulations explicitly allow for the possibility that a publicly-funded 

committee will physically segregate its public from its private funds, the repayment ratio still applies to all of the 

accounts. See 11 C.F.R. § 9007.2(b)(2)(iii). 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA # 905 

Page 5 

funds and private primary contributions are commingled even if a committee has more than one 

account and the public funds are held separate from the private primary contributions.^ See Final 

Report of the Audit Division on LaRouche Democratic Campaign (approved May 17,1990), at 8 

(rejecting committee argument that no repayment required because segregated federal tlmds 

account not used); Final Report of the Audit Division on Albert Gore, Jr. for President 

Committee, Inc. (approved July 13,1989), at 11 (separate bank account for deposit of matching 

funds would still require repayment); Final Report of the Audit Division on The Tsongas 

Committee, Inc. (approved Dec. 16,1994), at 65-66 (rejecting argument that Kennedy decision 

disallows repayment determination where specific account used did not contain matching 

fiinds);^ Statement of Reasons, Senator Robert Dole and the Dole for President Committee, Inc. 

' In 1987, the Commission voted to decline to seek repayment, and to exempt from the operation of the 

"mixed pool" principle, the private funds used in connection with a candidate's continued campaign after becoming 

ineligible to receive public ftinds because of a failure to receive 10 percent or more of the vote in two consecutive 

primary elections. See Prt^osed Slalement of Reasons In the Matter of Lyndon H. LaRouche; The LaRouche 

Campaign, at 17; Certification In the Matter of Final Repayment Determination and Drift Statemeiu of Reasons -

The LaRouche Campaign, Agenda Document It 87-87 (Aug. 20, 1987) (approving Draft Statement of Reasons by 

vote of 5-0). See also 11 C.F.R. § 9033.5(b) (failure to obtain 10 percent of vote in two consecutive primary 

elections renders candidate ineligible). The Commission specifically addressed this issue and cited Kennedy for 

President Committee v. Federal Election Commission, 734 F.2d 1558, 1563 (D.C. Cir. 1984) when it revised its 

regulations to allow candidates to use private ftinds to continue to campaign after the candidate's DOI. See 

Explanation and Justification for Final Rule on Public Financing of Presidential Primary and General Election 

Candidates, 56 Fed. Reg. 35898,35905 (July 29, 1991). 11 C.F.R. § 9034.4(a)(3)(ii). This is consistent with the 

Commission's mixed pool theory because a candidate that continues to campaign after DOI is no longer eligible for 

public ftinds for the purpose of campaigning. Those candidates, therefore, can only receive and use private 

contributions for that purpose. 11 C.F.R. § 9034.4(a)(3)(ii). 

In the Tsongas audit, the Commission ultimately declined to seek repayment with respect to amounts 

disbursed from a separate account, known as the Andover account, opened by a principal fundraiser, Mr. Nicholas 

Rizzo, without the committee's knowledge. See Certification In the Matter of The Tsongas Committee, Inc. -

Report of the Audit Division, Agenda Document # 94-128 (Dec. 8, 1994) (voting to revise repayment 

recommendation "relating to the amounts raised and spent by Mr. Rizzo"). See also Final Report of the Audit 

Division on The Tsongas Committee, Inc. (approved Dec. 16, 1994), at 66 ("However, after considering the 

circumstances surrounding this matter, on December 8,1994, the Commission decided not to seek a repayment."). 

Net deposits to the Andover account totaled approximately S720,000, and most of this sum was converted to Mr. 

Rizzo's personal use. See Executive Summary of Final Report of the Audit Division on The Tsongas Committee, 

Inc. (approved Dec. 16, 1994), at 2. The Commission's discussion of the audit indicates that it deemed the audit to 

present a unique situation warranting departure from the application of the mixed pool theory, but was not a 

rejection of the theory itself. Specifically, Mr. Rizzo had embezzled the committee's funds; the benefit of the 

disbursements from the Andover account had accrued solely to Mr. Rizzo and not to the committee; and the 

Andover account did not contain public funds, nor were the funds in the account used to obtain public ftinds. See, 

e.g.. Audio Recording: Commission Open Meeting on the Matter of The Tsongas Committee, Inc. - Report of the 

Audit Division, Agenda Doc. # 94-128 (Dec. 8. 1994) ("Audio Recording"), Audio File # 2, at 1:26:11-1:26:35 

(statement of Commissioner Thomas opining existence of consensus to not require repayment for disbursements 

made for personal use with embezzled money); at 37:45-42:10 (statement of Commissioner McGarry opining 

repayment inequitable where committee funds embezzled by trusted confidant and ftinds used for Mr. Rizzo's 

benefit rather than campaign's; small amount used for campaign's benefit appropriate subject of repayment, 

however); at 49:14-54:34 (statement of Commissioner Thomas, noting veiy unique circumstances of case because 

Mr. Rizzo not acting within scope of committee authority in using funds to pay gambling debts; ratio repayment not 

appropriate in this circumstance). 
Memorandum to Patricia C. Oirock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA # 905 

Paged 

at 24-25 (approved Feb. 6,1992) (rejecting argument that expenditures of third party on behalf 

of committee causing committee to exceed spending limitations not subject to repayment 

because third party never received public funds, and stating "[ojrdinarily, federal matching funds 

and private contributions are commingled in a committee's accounts"). 

Finally, if the Commission did not consider "all deposits to all candidate accounts" for 

the purpose of the repayment ratio, then a committee would be able to avoid the application of 

the theory of a "commingled pool of federal and private monies" and a possible repayment 

obligation simply by depositing its public funds and its private contributions into separate 

accounts. Committees that did so would be able to claim that they spent only their private 

primary contributions, and not their public funds, on non-qualified campaign expenses. 

This is exactly what the Committee is claiming in this case. The Kennecfy court, 

however, rejected the theory that one type of fund (private in that particular case) takes priority 

over another type in determining which funds were used to pay non-qualified campaign 

expenses.' Kennedy for President Committee v. Federal Election Commission, 734 F.2d 1558 

(D.C. Cir. 1984). The Commission's regulations follow this approach by making it clear that 

neither private contributions nor public funds may be used to defray non-qualified campaign 

expenses. 11 C.F.R. § 9034.4(a)(1). 

III. FINDING 4 - REPORTING OF DEBTS AND OBLIGATIONS 

In its response to the DFAR, the Committee raises the issue of the proper treatment of a 

$300,000 "win bonus" included as a term in the Committee's contract with its principal 

campaign consultant, NSON, also known as Political Advisors. The contract provided that this 

amount would be due to NSON from the Committee in the event that Mr. Johnson received his 

party's nomination as either Vice President or President - a condition that was fulfilled. Draft 

Final Audit Report of the Audit Division on Gary Johnson 2012, Inc., at 21 (March 26,2015). 

The DFAR concluded that the win bonus was an outstanding debt that was incurred as of 

the candidate's DOI - the date that triggered the requirement under the contract to pay the bonus 

by virtue of Mr. Johnson's receiving his party's nomination for President at that time. Id. As a 

consequence, the Audit Division concluded that the Committee should have reported the bonus 

as a debt as of the DOI and continuously thereafter until it was paid. Id, at 22. 

' The Comminee also states that but for its inadvertent oversight in failing to change the disclaimer on its 

internet-based contribution solicitation pages to reflect its intent to change the allocation of contributions between 

the primary and the general election, the factual grounds for the repayment determination would not have been 

present. It also quotes the Kennedy court's observation that "the violation of campaign spending limitations is often, 

if not usually, inadvertent," V. Federal Eieciion Commission, 134 ¥.2d 1538, 1560 n. I (D.C. Cir. 1984). It 

is not clear whether the Committee is arguing that the Commission ought to consider what the Committee intended 

the disclaimer to be rather than what the disclaimer actually was when evaluating the propriety of the repayment 

determination. Regardless of whether the error was "inadvertent," the Commission must look to the language of the 

actual disclaimer in place at the time the contributions were made in determining allocation, as the Audit staff has 

done here. 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA # 90S 

Page? 

in response to the DFAR, the Committee characterizes this finding as concluding that the 

win bonus was a primary expense and that it should have been paid from primary funds/ 

Committee Response to DFAR, at 3 (dated April 14,2015). The Committee states that it 

"reallocated" payments of $171,200 that it made to NSON during the thirty-day period 

immediately following the date of ineligibility ["DOl"] to "what would have been the earlier 

invoices based on the reasonable preference of the time-limited win bonus over other pre-DOl 

expenses."'" Id. It appears that the Committee may have chosen, in light of its understanding of 

the audit finding, to recharacterize past payments in the amount of $171,200 that it made to 

NSON for other services as, instead, a partial payment of the win bonus. 

The Committee's retroactive accounting, to treat a portion of the outstanding debt as 

having been paid in the past, may be due to the Audit Division's observation in the DFAR that 

Commission regulations, in pertinent part, do not allow the payment of bonuses to be considered 

qualified campaign expenses unless they are paid within 30 days of the DOI. See 11 C.F.R. § 

9034.4(a)(5)(i)(B). Nothing in section 9034.4(a)(5) warrants treating the sum of $171,200 as a 

proper bonus and therefore a qualified campaign expense. A plain reading of the regulation 

requires that the bonus actually be paid within 30 days of the DOI. The Commission has 

explained that it promulgated the bonus provision in reaction to a publicly funded campaign 

paying large monetary bonuses after the election upon discovery of excess public ftinds. See 

Explanation and Justification of Final Rules on Public Financing of Presidential Candidates and 

Nominating Conventions, 68 Fed. Reg. 47386,47390 (Aug. 8,2003)." The requirements that a 

bonus be memorialized in an advance written contract and that it be paid within a specific and 

restricted period of time must therefore be seen as necessary means to the fulfillment of this 

purpose. Allowing the Committee's retrospective accounting long after the expiration of the 

time period provided for in the regulation to substitute for actual, contemporaneous payment 

would create too much leeway for publicly-funded committees to thwart that purpose. 

' As discussed below, the Audit Division's Tindingis actually that the win bonus is not a qualified campaign 

expense because it was not paid within thirty days of the DOI. Further, it is unclear whether, apart from the 

Committee's retroactive accounting methodology, any part of this debt has in fact been paid. 

The Committee notes that the remaining balance of the total bonus amount of $300,000, which would be 

$128,800, would not be a qualified campaign expense, and will be addressed through its negotiations with NSON to 

settle its debts. This suggests that the Comminee regards $ 171,200 of the bonus as having been paid and the 

remainder as having not yet been paid, and therefore remaining as outstanding debt. 

'' The Commission's explanation provided here is of the modification of 11 C.F.R. § 9004.4(a)(6), which is 

the provision governing payments of gifts and bonuses by committees receiving public funds for the general 

election. However, elsewhere in the Explanation and Justification, the Commission notes that it has modified 11 

C.F.R. § 9034.4(a)(S), the parallel provision pertaining to publicly funded candidates for the primary election, for 

the same reasons as for the general election provision. See Explanation and Juslificalion of Final Rules on Public 

Financing of Presidential Candidates and Nominating Conventions, 68 Fed. Reg. 47386,47406 (Aug. 8,2003) 

("For the reasons explained above in the explanation and justification for newly redesignated 11 C.F.R. § 

9004.4(aX6), the Commission has decided to make a similar change to 11 C.F.R. § 9034.4(aXS)."). 
Memorandum to Patricia C. Orrock and Thomas E. Hintermister 

Gary Johnson 2012 Audit Division Recommendation Memorandum 

LRA H 905 

Pages 

IV. FINDING 5 - EXTENSION OF CREDIT BY A COMMERCIAL VENDOR 

Finding S concludes that NSON made a prohibited corporate contribution to the 

Committee by extending credit to the Committee outside of its normal course of business and by 

not making commercially reasonable attempts to collect approximately $1.75 million in debt 

owed by the Committee for services rendered. 

The DFAR concluded that because copies of contracts between NSON and other clients 

submitted by the Committee redacted the clients' identities, they did not suffice to show that 

NSON's contractual terms with the Committee were part of its normal course of business. See 

Draft Final Audit Report of the Audit Division on Gary Johnson 2012, Inc., at 26 (March 26, 

2015). The DFAR stated that because of the redactions, the Commission could not verify the 

Committee's representations as to the political or non-political nature of the clients. Id. In 

response, the Committee argues that nothing in the applicable laws or regulations requires NSON 

to disclose the identities of its clients to the Audit staff. Committee Response to DFAR, at 4 

(dated April 14,2015). Further, the Committee contends that requiring this disclosure would 

violate relevant contract terms or trade customs. Id. The Committee argues that the similarity of 

the terms of the proffered contracts to its own contract with NSON suffices to show that NSON 

pursued its normal course of business with the Committee. Id. 

In the context of debt settlement plan review, the Commission has accepted similar 

evidence such as a chart from a debtor committee identifying a creditor's other clients using 

letters of the alphabet without requiring independent verification. See Memorandum to 

Commission on Withdrawal and Resubmission of Debt Settlement Plan # 11-02, Stouffer for 

Congress, at 5-6 (Aug. 10,2012). However, the context of reviewing debt settlement plans 

differs from that of conducting a mandatory audit of a publicly-financed political committee 

pursuant to 26 U.S.C. § 9038. In the latter context, committees agree as a condition of receiving 

public funds that they will provide evidence of qualified campaign expenses, and records, books, 

and other information requested. 26 U.S.C. § 9033(a)(l)-(2). In the public funding area, the 

United States Court of Appeals for the District of Columbia has concluded that the Commission 

was not required to accept at face value, without supporting documentation or evidence, the 

statement of an accountant for an audited committee that putative mark-up charges were 

reasonable for the market. LaRouche's Committee for a New Bretton Woods, 439 F.3d 733, 738-

39 (D.C. Cir. 2006). In that case, however, there was apparently no documentation or evidence 

to support the accountant's unsubstantiated conclusion at all, whereas here there is evidence of 

similar contract terms.'' 

" We note also that a similar issue involving the sufficiency of contract evidence was raised in the Final 

Audit Report on the Rightmarch.com PAC Inc. political committee. See Final Audit Report of the Commission on 

RIGHTMARCH.COMPACING, at 12 (dated February 26,2013). Rightmarch offered contracts made by similar 

vendors in the industry, but did not offer contracts its specific creditor made with other political and non-political 

clients. Id. The Commission was not able to approve the finding in which this discussion is located by four 

affirmative votes, however, and the finding is in the "Additional Issues" section under Directive 70 . Id, at 13.