FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

VIA ELECTRONIC & CERTIFIED MAIL 

Dan Backer, Esq. 

Joseph Lilly, Esq. 

DB Capitol Strategies 

203 South Union Street, Suite 300 

Alexandria, VA 22314 

APR 0 5 2016 

Re: Governor Gary Johnson and Gary Johnson 2012, Inc. 

Dear Messrs. Backer and Lilly: 

The Commission has considered the response submitted on behalf of Governor 

Gary Johnson and Gary Johnson 2012, Inc. (the "Committee") to the Commission's 

repayment determination. On April 4, 2016, the Commission determined, after 

administrative review, that Governor Johnson and the Committee must repay $332,191 to 

the United States Treasury. Governor Johnson and the Committee must repay this 

amount within 30 calendar days after service of this determination. 1 11 C.F.R. 

§ 9038.2(c)(3), (d)(2). 

Enclosed is a Statement of Reasons that sets forth the legal and factual basis for 

the Commission's determination. 11 C.F.R. § 9038.2(c)(3). Judicial review of the 

Commission's determination is available pursuant to 26 U.S.C. § 9041. You may also 

file a petition for rehearing with the Commission within 20 calendar days of service of 

this determination. 11 C.F.R. §§ 9038.2(h), 9038.5(a). If you have any questions 

regarding the Commission's determination, you may contact Joshua Blume, the attorney 

The Commission also made a separate determination, which was not part of the Commission's 

administrative review, that Governor Johnson and the Committee must repay the sum of $1 ,250, 

representing contributions submitted for matching later determined not to meet the matching requirements. 

Payment of this amount will also be due within 30 calendar days after service ofthis determination. 

,, 
Letter to Dan Backer and Joseph Lilly, Esqs. 

Governor Gary Johnson and Gary Johnson 2012, Inc. 

Page 2 of2 

assigned to this matter, at (202) 694-1533. 

Enclosure 

Sincerely, 

Adav Noti 

Acting Associate General Counsel 

Policy Division 
BEFORE THE FEDERAL ELECTION COMMISSION 

In the Matter of 

Gary Johnson 

Gary Johnson 2012, Inc. 

) 

) 

) 

LRA 905 

STATEMENT OF REASONS IN SUPPORT OF REPAYMENT DETERMINATION 

AFTER ADMINISTRATIVE REVIEW 

I. SUMMARY OF REPAYMENT DETERMINATION AFTER ADMINISTRATIVE 

REVIEW 

Pursuant to 26 U.S.C. § 9038(b)(2), on April4, 2016, the Federal Election Commission 

("the Commission") determined, after administrative review, that Governor Gary Johnson and 

Gary Johnson 2012, Inc. (collectively, "Johnson" or "the Committee") must repay $332,191 to the 

United States Treasury for matching funds spent on non-qualified campaign expenses. 

Therefore, for the reasons set forth below, the Commission orders Gary Johnson to repay $332,191 

to the United States Treasury within 30 calendar days after service of this repayment 

determination. 11 C.F.R. § 9038.2(c)(3), (d)(2). 

II. PROCEDURALBACKGROUND 

Gary Johnson sought the Libertarian Party's 2012 nomination for the Office of President of 

the United States. Gary Johnson 2012, Inc., his principal campaign committee, registered with 

the Commission in January 2012. Johnson applied for matching funds, and the Commission 

determined that he was eligible to receive matching funds on May 3, 2012. Johnson received a 

total of$632,016.75 in matching funds from the United States Treasury. 

The Commission determined that Johnson was no longer eligible to receive public funds to 

seek his party's nomination as ofMay 5, 2012. This date is referred to as his date of ineligibility 
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("·DOl"). 1 and it is the day the Libertarian Party nominated him to be its presidential candidate at 

its national nominating convention. See II C.F.R. §§ 9032.6(a), 9033.5(c). 

Following the conclusion of Governor Johnson 's campaign, the Commission conducted a 

mandatory audit of the Committee's finances, and, as a part of that audit, detennined that Johnson 

must repay $332,191 to the United States Treasury because the Committee used matching funds to 

defray non-qualified campaign expenses. See Attachment I. As a publicly-financed committee 

for the 2012 presidential primary election, the Committee had two sources of financing for that 

election : (I) public matching funds from the United States Treasury, and (2) private contributions 

from individual contributors that were designated for the primary election. The Commission has 

consistently considered these funds a mixed pool of public and private funds. See, e.g.. 

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

General Elect ion Candidates, 56 Fed . Reg. 3 5 898, 3 5905 (July 29, 1991) ('" ... allfunds in a 

publiclyfunded committee's accounts are considered to be commingled.") (emphasis added). 

Publicly-financed committees may only use these funds for qualified campaign expenses. 

26 U.S .C. § 9038(b)(2)(A); II C.F.R. §§ 9034.4(a); 9038.2(b)(2)(i). A qualified campaign 

expense is a purchase , payment, distribution, Joan, 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 

While the DOl marks the end of the period within which an eligible presidential candidate may receive 

matching payments to pay for qualified primary campaign expenses generally, presidential candidates may receive 

matching payments after the DOl to the extent that they continue to have net outstanding campaign obligations arising 

from the primary campaign. II C.F.R. § 9033.5. See also II C.F.R. § 9034.5 (defrning ""net outstanding campaign 

obligations''). On November 14, 2013 , the Commission made a final determination that Johnson was no longer 

eligible to receive matching p~yments after his DOl because the Committee could not demonstrate that it had net 

outstanding campaign obligations. See Statement of Reasons in Support of Final Determination on Entitlement in the 

Matter of Governor Gary Johnson, LRA 905 (Nov. 14, 2013). After conducting the subsequent mandatory audit of 

the Committee, the Commission determined that Johnson continued to have net outstanding campaign obligations. 

See Final Audit Report of the Commission on Gary Johnson 2012, Inc ., at 8 (July 6, 20 15). 
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committee through the last day of eligibility that is made in connection with the campaign for 

nomination and is not made in violation of Federal or State law. II C.F.R. § 9032.9. See also 

26 U.S.C. § 9032(9). 

If a committee uses these funds to defray nonqualified campaign expenses, then the 

committee may owe a repayment to the United States Treasury. II C.F.R. § 9038.2(b)(2)(i). 

Only public funds are subject to repayment, 26 U.S.C. § 9038(b)(2). but the committee's funding 

source is considered a mixed pool of private contributions and public funds. To determine the 

amount of public funds that were used to defray the nonqualified campaign expenses, the 

Commission uses a pro-rata repayment formula found at 11 C.F.R. § 9038.2(b)(2)(iii). 

The Commission found that the Committee incurred $1,194,425 in nonqua1ified campaign 

expenses because they were expenses incurred in connection with the general election rather than 

in connection with the primary election. See Attachment 1, at 17, n. 14. Using the appropriate 

pro-rata formula. the Commission made an initial determination that the Committee must repay 

$332,191 to the United States Treasury on July 6, 2015 . The Committee submitted a written 

response to the Commission's initial repayment determination on September 4, 2015 and 

requested an oral hearing . Attachment 2. An oral hearing was conducted on November 2, 2015 . 

Following the oral hearing, the Committee submitted supplementary comments on November 9, 

2015 . Attachment 3. 

III. AFTER ADMINISTRATIVE REVIEW, THE COMMISSION DETERMINES 

THAT THE COMMITTEE MUST REPAY PUBLIC FUNDS THAT WERE USED 

TO DEFRAY NONQUALIFIED CAMPAIGN EXPENSES 

The Committee disputes the initial determination in administrative review, primarily 

contending that the use of the pro-rata formula in this case is not consistent with the Matching 

Payment Act. The Committee argues that the pro-rata formula was not properly applied in this 
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case because the Committee maintained its public and private funds in separate accounts and the 

funds that were used to defray the nonqualitied campaign expenses were only disbursed from the 

account that was used to hold the private contributions. See Attachments 2-3 . 

The Commission disagrees with the Committee's legal interpretation. This review boils 

down to the simple question of how the Commission determines how much, if any, public funds 

were improperly used when a committee uses its primary funds to defray nonqualified campaign 

expenses. Under the governing Commission regulations, the Commission relies on a pro rata 

formula set forth in the regulations at II C.F.R. § 9038 .2(b)(2)(iii) to make that calculation, rather 

than attempting to recreate the originating source of funding for each dollar spent on nonqualified 

campaign expenses. Under this formula, the amount of repayment is in the same ratio to the total 

amount spent on non-qualified campaign expenses as the ratio of matching funds ccrtitied to the 

candidate bears to the candidate 's total deposits. !d. "Total deposits," for the purpose of 

applying this fonnula, means ·'all deposits to all candidate accounts minus transfers between 

accounts, refunds, rebates, reimbursements, checks returned for insufticient funds, proceeds of 

loans, and other similar amounts.'' II C.F.R. § 9038.3(c)(2) (emphasis added). The regulations, 

therefore, require that the Commission apply the formula to all of the candidate's primary funds in 

all of his election-related accounts 2 There is no exception for a separate account that solely holds 

private contributions. 

Thus, the Commission excluded the Committee's general election contributions deposited in its general 

election account, but included the Committee's primary election contributions deposited in the same account. The 

Committee could not use general election contributions to finance primary election activity, see Explanation and 

Justificatton for Final Rule on Public Financing of !'residential f'rimwy and General Election Candidates, 60 Fed. 

Reg. 31854, 31866 (June 16, 1995 ). and so not counting general election contributions in the mixed pool of private 

primary contributions and public funds is proper. The Commission. therefore, disagrees with the Committee's 

suggestion that the Committee is acting inconsistently by departing from the literal language of its definition of ''total 

deposits" in II C.F.R. § 9038.3(c)(2) by excluding the general election contributions while being unwilling to 

similarly exclude the primary election contributions. Attachment 3, at 3. 
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The Commission adopted this formula following the decision of the United States Court of 

Appeals for the District of Columbia Circuit in Kennedyfor President Commillee v. Federal 

Election Commission, 734 F.2d 1558 (D.C. Cir. 1984). The Kennedy court invalidated a prior 

Commission regulation governing repayment determinations, which required repayment of the 

total amount of a committee's spending on non-qualified campaign expenses regardless of 

whether that amount consisted of private or public funds. See Kennedy for President Commillee 

v. Federal Election Commission, 734 F.2d at 1559-60 (''The Commission 's regulation, however, 

on its face and as applied to [the Kennedy committee] in this case, indulges the unreasonable 

presumption that all unqualified expenditures are paid out of federal matching funds.") (emphasis 

in original). In invalidating this approach, the court concluded that the Commission is required to 

make a reasonable determination that the sum to be repaid reflects the public funds used for 

non-qualified purposes. Kennedy, 734 F.2d at 1562. At the same time, because 26 U.S.C. 

§ 9038(b)(2) does not specify a particular method for calculating the amount of money to be 

repaid, the Kennedy court concluded that Congress granted the Commission discretion to devise a 

method for calculating this repayment amount. 

The Commission exercised this discretion when it adopted the repayment ratio iri I I C.F.R. 

§ 9038.2(b)(2)(iii). The Committee argues, however, that 11 C.F.R. § 9038 .2(b) purportedly 

establishes a two-step procedure that the Commission must follow but has failed to follow in this 

case : first, the Commission must make a determination that matching payments were in fact used 

as a source of funds inappropriately pursuant to II C.F.R. § 9038.2(b)(i), and, second, once that 

determination has been made, the Commission must calculate the amount of repayment to be 

sought using the repayment ratio set forth in 11 C.F.R. § 9038.2(b)(2)(iii). See Attachment 3. 

By proceeding straight to the second step, the Committee argues that the Commission has 
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neglected its predicate responsibility to make a determination that matching funds were in fact 

used- a determination that it presumably could not make in the Committee 's view because the 

Committee physically separated the private and public funds in separate accounts. 

Contrary to the Committee's characterization, both of these steps are accounted for in the 

pro rata formula adopted by the Commission. The Commission's regulations, particularly the 

Commission's definition of ·'total deposits" as that term is to be construed when applying the 

repayment ratio formula, presume that all accounts of a candidate constitute a single, mixed pool 

of monies containing both private and public funds. Therefore, under the Commission's 

regulations, any spending on non-qualified campaign expenses necessarily means that matching 

funds were spent on non-qualified campaign expenses. The ratio represents a portion of' 'the total 

amount determined to have been used for non-qualified campaign expenses." 11 C.F.R. 

§ 9038.2(b)(2)(iii). This "total amount" necessarily includes both public and private primary 

funds used for such expenses in all of the candidate's accounts. See. e.g . 11 C.F.R. § 9034.4(a) 

The repayment ratio is applied collectively to a publicly-funded committee's total deposits up to 

the point at which public funds are no longer deemed to be in the accounts. 11 C.F.R. 

§ 9038 .2(b)(2)(iii)(B). 

A. THE COMMISSION HAS CONSISTENTLY APPLIED A "MIXED 

POOL" ANALYSIS WHEN DETERMINING A COMMITTEE'S 

REPAYMENT OBLIGATION FOR NON-QUALIFIED CAMPAIGN 

EXPENSES 

The Commission has consistently rejected arguments similar to the Committee's in 

previous audits of publicly-funded committees and has concluded that a publicly-funded 

committee's segregation of its public funds from its private funds has no impact in the application 
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of the pro-rata formula and calculation of the repayment obligation.) See final Report of the 

Audit Division on LaRouche Democratic Campaign (approved May 17, 1990), at 8 (rejecting 

committee's argument that no repayment required because segregated federal funds account not 

used);• Final Report of the Audit Division on Albert Gore, Jr. for President Committee, Inc. 

(approved July 13, 1989), at ll (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 funds);

5 Statement of 

Jn 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 continuation of his campaign after having 

become ineligible to receive public funds because of a failure to receive 10 percent or more ofthe vote in two 

consecutive primary elections. See Proposed Statement of Reasons In the Maller of Lyndon H. LaRouche; The 

LaRouche Campaign, at 17; Certification In the Mutter afFinal Repayment Determination and Draft Statement of 

Reasons - The LaRouche Campaign, Agenda Document # 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 

fur !'resident when it revised its regulations to allow candidates to use private funds to continue to campaign after 

DOl. See Explanation and Justification for Final Rule on Public Financing of !'residential !'rim my 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 who continues to campaign after DOl is no longer 

eligible for public funds 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). 

The LaRouche comminee sought administrative review of the portion of the Commission's repayment 

detennination finding that the LaRouche committee received matching funds that, when combined with its private 

contributions, e.xceeded the amount necessary to retire its debts. See f'rop osed Final Repayment Determination and 

S1atement of Reusons- Lyndon H. LaRouche. Jr. and the LaRouche Democratic Campaign (L RA #326) ("SOR") 

(Sept. 3, 1992); Certification In the Matter of Proposed Final Repayme111 Determination and Statement of ReasonsLy ndon H. LaRouche Democratic Campaign (LRA If 326). Agenda Document # 92-1 19 (Sept. 18, 1992) (approving 

SOR). See also 26 U.S.C.§ 9038(b)( I) (receiving matching funds exceeding entitlement). The Commission noted 

that the LaRouche committee through its actions revealed that it considered its private and public funds commingled 

despite their relegation to separate bank accounts. Proposed Final Repayment Determination and Statement of 

Reasons - Lyndon H. LaRouche, Jr. and the La Ruuche Democratic Campaign, supra, at 20 ("[s)ubmitting the funds 

for matching renders all ofthe money in the [LaRouche committee's] accounts a part of the same pool. "). Given the 

context discussed , the Commission does not regard this last statement as placing its general position regarding 

presumptive commingling of private and public funds into question . Rather, the Commission's statements here were 

made in the context of evaluating whether the LaRouche committee, in the context of the continuing to campaign 

regime , should be deemed eligible to receive the benefit of the exception to the presumption of commingling that the 

Commission created in its August 20. 1987 Statement of Reasons. discussed in footnote 3, supra. 

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 
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Reasons, Senator Robert Dole and the Dole for President Committee, Inc. (approved Feb. 6, 1992), 

at 24-25 (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 "[o]rdinarily, federal matching funds and private contributions 

are commingled in a committee's accounts"). Thus, the Commission has consistently followed 

the principle that a committee's public funds and private primary contributions are commingled, 

even if a committee has more than one account, and applied the pro rata formula to "all deposits to 

all candidate accounts" in audits of publicly-financed committees, just as it has applied it here to 

the Johnson Committee. II C.F.R. § 9038.3(c)(2). 

The Commission has also consistently applied the principle that the public funds and 

private contributions are treated as being in a mixed pool in and across all accounts in similar 

contexts under the Matching Payment Act. In revising II C.F.R. § 9038.2(b)(2), the Commission 

could have chosen to segregate private contributions received by a publicly-funded committee 

atter the candidate's DOl and to exclude those private contributions from the repayment ratio 

calculation. Explanation and Just{ficationfor Final Rule on Public Financing o.lPresidential 

Primary and General Election Candidates. 60 Fed. Reg. 31854, 31870 (June 16, 1995). Instead, 

the Commission elected to capture the private contributions received after the DOl as a mixed pool 

Rizzo. without the committee's knowledge. See Certification In the Mauer ofThe Tsongas Commillee, Inc. - Report 

uf 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. 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 ofthe 

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 funds. 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 I :26 : I 1-1 :26 :35 ; at 3 7:45-42 : I 0; at 

49 :14-54 :34 . 
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with public funds so as to "more accurately reflect[) the mix of public funds and private 

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

amounts of private contributions after his or her [DOl]. By taking private contributions received 

within 90 days of DOl 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." /d. 

Similarly, the Commission elected not to separate public funds and private contributions 

based on the accounts holding those funds in the context of general election public financing.

6 

When a publicly-financed candidate in the general election accepts private contributions, the 

committee may opt to deposit them into separate accounts, or may deposit both types of funds into 

the same account. II C.F.R. §§ 9003.3(b)(2), (c)(3), 9005.2(c). Although the 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 II C.F.R. 

§ 9007.2(b)(2)(iii). 

If the Commission did not consider "all deposits to all candidate accounts'· as adopted in its 

regulation, but rather merely examined which account disbursed public funds when accounts are 

separated, as the Committee argues, such an approach, although simple, would be ripe for abuse. 

The Committee's interpretation would pennit publicly-funded committees generally to avoid 

incurring repayment obligations by simply resorting to the expediency of depositing their public 

funds and their private funds in separate accounts and only spending private contributions on 

While candidates are generally not permitted to accept private contributions in this context, 26 U.S.C. 

§ 9003(b)(2). 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 public funds. II C.F.R. 

§ 9003 J(b )(I). 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 . II C.F.R. § 9003.3(c). 
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non-qualified campaign expenses. The United States Court of Appeals has already rejected the 

approach that all nonqualified campaign expenses are paid from public funds. Kennedy.for 

President Commiffee v. Federal Election Commission, 734 F.2d at 1559-60. Similarly, the 

Commission, by adopting the mixed-pool theory, has consistently rejected the approach that all 

non-qualified campaign expenses are paid from private contributions.

7 

B. THE APPLICATION OF THE REPAYMENT RATIO TO ALL OF 

THE CANDIDATE'S PRIMARY FUNDS DEPOSITS IN BOTH 

ACCOUNTS IS CONSISTENT WITH THE MATCHING PAYMENT 

ACT AND WITH THE KENNEDY DECISION. 

The Commission ·s interpretation of the Matching Payment Act is consistent with the Act's 

requirement of repayment only of public funds that were used to pay for non-qualified campaign 

expenses. See 26 U.S.C. §§ 9038(b)(2) (Commission authorized to seek repayment of funds paid 

to candidate from matching payment account used to defray expenses other than qualified 

campaign expenses); 9032(5) (''matching payment account" means the Presidential Primary 

Matching Payment Account established under section 903 7(a)). See also Kennedyfor President 

Commiffee v. Federal Election Commission, 734 F.2d 1558, 1561 (D.C. Cir. 1984) (section 

9038(b)(2) limits repayment determination to the amount of public funds spent on non-qualified 

campaign expenses). 

Congress has. in fact, already prescribed the use of a repayment ratio as the means to 

determine the amount that a publicly-funded campaign must repay to the U.S. Treasury in cases 

where the publicly-funded committee completes the campaign with surplus funds. See 26 U.S.C. 

§ 9038(b)(3). This provision directs the Commission to require repayment of "that portion of any 

unexpended balance remaining in the candidate 's accounts which bears the same ratio to the total 

The Commission 's regulations also forbid the use of private primary contributions to defray non-qualified 

campaign expenses. II C. F. R. § 9034.4(a)( I). 
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unexpended balance as the total amount received/rom the matching payment account bears to the 

total of all deposits made into the candidate's accounts." !d. (emphasis added). The 

Commission's implementation of this command in II C.F.R. 9038.3(c) uses the same definition of 

"total deposits" as does the repayment ratio for non-qualified campaign expenses. See II C.F.R. 

§§ 9038.2(b)(2)(iii)(A), 9038.3(c)(l ), (2). 

In exercising the discretion afforded it by Congress and confirmed in the Kennedy 

decision8 to devise a method for computing a publicly-funded candidate's repayment obligation in 

the event that the candidate spends public funds on non-qualified campaign expenses, see 

26 U.S.C. § 9038(b)(2), the Commission did not invent a whole new approach, but rather adopted 

the same method that Congress had already mandated for the repayment of public funds in the 

event of a surplus under 26 U.S. C. § 9038(b)(3). See Notice of Proposed Rulemaking on 

Repayments by Publicly Financed Presidential Candidates, 49 Fed. Reg. 26596 (June 28, 1984) 

('In addition, the proposed formula would essential ly adopt the pro-rata approach found in 26 

U.S. C. [§] 9038(b)(3), concerning repayment of surplus funds''). 

The Committee nevertheless argues that the Kennedy court would not endorse the 

application of the pro rata formula here, where the private and public funds are separated, as 

reasonable. Attachment 2. It cites material from the Kennedy decision criticizing the 

Commission's rationale for its previous regulation, which required I 00 percent repayment of all 

primary funds spent on non-qualified campaign expenses, without regard to the distinction 

There is some indication in the Kennedy dissenting opinion that the question of the traceability of th e use of 

public funds may have been an issue in the litigation. See Kennedy for !'resident, 734 F.2d at 1567 (Starr, J. 

dissenting) ( .. Both the Commission and the Committee acknowledge that the commingling of private and federal 

funds precludes tracing to determine which federal funds were used for unqualified expenditures"). There is no 

indication, however. that the majority 's endorsement of a ratio ap proach was based on the physical commingling of 

funds. 
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between private and public funds, to support this proposition. See Kennedy, 734 F.2d at 1564-65, 

n. 8-1 0. Attachment 2. However, as noted above, in each of these citations, the Kennedy court 

was addressing the propriety of adopting a 100 percent repayment formula . The Kennedy court at 

the same time indicated that the adoption of a pro rata formula in lieu of a 1 00 percent repayment 

formula would be the better course given these criticisms. See, e.g, Kennedy , 734 F.2d at 1564, 

n. 8 c·we find it considerably difficult to understand, then, why an expenditure, paid out of a pool 

of funds at least half of which was comprised of private money, should be deemed to have been 

comprised solely of(ederal money) (emphasis in original); Kennedy, at 1564 ("Of course, an 

unqualified expenditure, like any other expenditure, will reduce the campaign's overall available 

funds, and thus cause more federal monies to be spent than otherwise would have been spent. The 

relevant question, however, is how much extra federal money be spent as a result of the unqualified 

expenditure?"); Kennedy, at 1565 ("Accordingly, insofar as the FEC's repayment formula for 

unqualified expenditures looks to the "net result" of the unqualified expenditures, [citation 

omitted] it appears that a pro rata formula , such as the one proposed by the Committee, would be 

reasonable."); Kennedy, at 1565, n.1 0 CTherefore, the FEC's rationale would still justify at most a 

pro rata repayment formula, insofar as the formula looks to the overall "net result" of the 

unqualified spending [citation omitted].' '). 

Thus, the Commission concludes that its use of the repayment formula of 11 C.F.R. 

§ 9038.2(b)(2)(iii) to calculate Johnson's repayment obligation is reasonable, is consistent with 

the command of the Matching Payment Act, and does not transgress the limitations on the 

Commission 's discretion to seek repayment identitied by the Kennedy court. 
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C. THE COMMITTEE'S FAILURE TO CHANGE THE WORDING OF 

ITS CONTRIBUTION SOLICITATIONS, EVEN IF INADVERTENT, 

CANNOT EXEMPT IT WHOLLY OR PARTIALLY FROM ITS 

REPAYMENT OBLIGATION 

Contrary to the Committee's argument, the Committee's failure to alter its contribution 

solicitation language in accordance with its intent does not exempt Johnson from his repayment 

obligation. The Committee included language in its solicitations of contributions that had the 

effect of designating portions of each contribution toward the primary and the general elections, 

respectively.'1 Throughout both election periods, this language indicated that the first $2,500 of 

each contribution would be considered as designated for the primary election. However, the 

Committee contends that it had intended to change this language so that only the first $250 of each 

contribution would be considered designated toward the primary election, and that during the 

election periods it acted in accordance with this understanding. See Statement of Reasons in 

Support of Final Determination of Entitlement in the Matter of Governor Gary Johnson (LRA 905) 

(Nov. 14, 20 13); Memorandum from Audit Division to the Commission on Audit Division 

Recommendation Memorandum on Gary Johnson 2012, Inc .. at 2 (June 4, 20 15). 

The Committee argues that had it not committed this error, it would not have used its 

primary funds to defray general election expenses. This argument focuses on the amount of 

nonqualified campaign expenses. The Committee argues that if it applied the designation of only 

allowing the first $250 to be for the primary election, then it would have had more general election 

Commission regulations allow, and, indeed, encourage, contributors to designate their contributions for 

specific elections, and one way that a contributor may designate his or her contribution is to submit it along with a 

writing, signed by the contributor, which clearly indicates the particular election for which the contribution is made . 

II C.F.R. § 1JO.J(b)(4)(ii). This requirement is fulfilled if the contributor signs a statement providing for the 

designation of the contribution supplied by the recipient committee. Explanation and Justification for Final Rule on 

Contribution and Expenditwe Limitations and f'rohibitions[.}Contriblllions hy !'ersons and Multicandidate Political 

Committees. 52 Fed. Reg. 760, 763 (Jan. 9, 1987). 
Gary Johnson and Gary Johnson 2012, Inc . 

Repayment Determination After Administrative Review 

Statement of Reasons 

Page 14 

funds to spend on general election expenses. Thus, there would have been less primary election 

funds used to defray general election expenses and there would be less nonqualified campaign 

expenses. The Committee argues, therefore, that the repayment determination, grounded as it 

was upon this unintentional oversight, represents a disproportionate and punitive response to this 

purported error. 

The Commission disagrees. The Commission's repayment determination is based strictly 

upon its application of the repayment ratio in II C.F.R. § 9038.2(b)(2)(iii) to the facts of the case. 

It is not intended, nor does it operate, as punishment. A repayment determination made under the 

auspices of the Presidential Primary Matching Payment Account Act is not considered to involve a 

violation of law, and sanctions would only be appropriate if the Commission were to find, as it has 

not in this case, that the Committee willfully and knowingly violated the qualified spending 

limitation. See John Glenn Presidential Committee, Inc. v. Federal Election Commission, 822 

F.2d I 097, II 00 (D.C. Cir. 1987); Reagan Bush Commillee v. Federal Election Commission, 525 

F.Supp. 1330, 1337 (D.D.C. 1981 ). See also Larouche v. Federal Election Commission, 28 F.3d 

137, 142 (D.C. Cir. 1994) (" ... the request that [petitioners] repay the post-July 22, 1988, 

matching funds was not a sanction [provided by FECA or by chapter 95 or chapter 96 of title 

26)."). 

Although the Committee may have erred in neglecting to change the language of its 

designations in accordance with its intentions, the Commission is obliged by its regulations to 

categorize the Committee's contributions in accordance with the evidence of record, which 

consists of signed contributor statements endorsing the designation formula as actually written. 

II C.F.R. § IIO.I(b)(4)(ii). It is the contributors' declared intentions respecting the designation 

of their contributions to which the Commission must attend, rather than the Committee's 
Gary Johnson and Gary Johnson 2012, Inc . 

Repayment Determination After Administrative Review 

Statement of Reasons 

Page I 5 

undeclared intentions, and the fact that the contributors' signatures appear on writings containing 

the rule that the first $2,500 of each contribution is considered a primary election contribution is 

the best evidence of the contributors' intentions.

10 See Explanation and Justification for Final 

Rule on Contribution and Expenditure Limitations and Prohibitions[.}Contributions by Persons 

and t'vfulticandidare Political Commdtees. 52 Fed. Reg. 760, 761 (Jan. 9, 1987) ("Written 

designations ensure that the contributor's intent is clearly conveyed to the recipient candidate or 

committee ."). 

IV. CONCLUSION 

The Commission determines that, within 30 days of service of this Repayment 

Determination After Administrative Review, Gary Johnson and Gary Johnson 2012, Inc. must 

repay $332,191 to the United States Treasury for matching funds spent on non-qualified campaign 

expenses. 26 U.S .C. § 9038(b)(2); II C.F.R. § 9038.2(b)(2)(iii). 

ATTACHMENTS 

I. Final Audit Report of the Commission, approved July 6, 2015 

2. Committee's Request for Administrative Review, dated Sept. 4, 2015 

3. Committee's Post-Hearing Supplementary Comments, dated Nov . 9, 2015 

10 The Commission notes as well that while the Comminee deposited most of the contributions it received after 

the DOl into its general election account, some of the funds that the Comminee characterized as general election 

funds, according to its understanding that amounts after the tirst $250 of each contribution were general election 

contributions, were in fact used for primary election expenses. 
Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every po litical committee 

established by a candidate 

who receives pub lic funds 

for the primary 

campaign. 1 The audit 

determines whether the 

candidate was entitled to 

all ofthe matching funds 

received, whether the 

campaign used the 

matching funds in 

accordance with the Jaw, 

whether the candidate is 

entitled to additional 

matching funds, and 

whether the campa ign 

otherwise complied with 

the I imitations, 

prohibitions, and 

disc losure requirements 

of the election law. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

1 26 U.S.C. §9038(a). 

Final Audit Report of the 

Commission on Gary Johnson 

2012, Inc 

(April 1, 20 11- November 30, 2014) 

About the Campaign (p . 3) 

Gary Johnson 20 I 2, Inc is the principal campaign committee 

for Gary Johnson, a candidate for the Libertarian Party 

nomination for the office of President of the United States. 

The Committee is headquartered in Salt Lake City, Utah. For 

more information, see the chart on the Campaign 

Organization, p. 3. 

Financial Activity (p. 4) 

• Receipts 

o Contributions from Individuals 

o Matching Funds Received 

Total Receipts 

Disbursements 

o Operating Expenditures 

o Fundraising Disbursements 

o Exempt Legal and Accounting 

Disbursements 

Total Disbursements 

Commission Findings (p. 5) 

$ 2,249,318 

510,261 

$ 2,759,579 

$ 2,534,497 

153,019 

28,130 

$ 2,715,646 

• Net Outstanding Campaign Obligations (Finding 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) 

Additional Issue (p. 6) 

• Extension of Credit by a Commercial Vendor 

ATTACHllENT 

- -t-- --- Page _ __ _ 
Final Audit Report of the 

Commission on 

Gary Johnson 2012, Inc 

(April 1, 2011 - November 30, 2014) 

ATT.ACHli.EN7' 

"Me ;L ------- of, 3 ~ 
Table of Contents 

Part I. Background 

Authority for Audit 

Scope of Audit 

Inventory of Campaign Records 

Committee Structure 

Audit Hearing 

Part II. Overview of Campaign 

Campaign Organization 

Overview of Financial Acti vity 

Part III. Summaries 

Page 

1 

I 

1 

I 

2 

3 

4 

Commission Findings 5 

Amounts Owed to the United States Treasury 7 

Part IV. Commission Findings 

Finding I. Net Outstanding Campaign Obligations 8 

Finding 2. Amounts Owed to the U.S. Treasury 12 

Finding 3. Use of General Election Contributions for Primary Election 

Expenses 20 

Finding 4. Reporting of Debts and Obligations 22 

Part V. Additional Issue 

Extension of Credit by a Commercial Vendor 26 

ATTACHWENr J 

Page 3 --o-'-t-.__3-j--
Part I 

Background 

Authority for Audit 

This report is based on an audit of Gary Johnson 20 12, Inc (GJ20 12), undertaken by the 

Audit Division of the Federal 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 qualified campaign expenses of every candidate and his authorized 

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

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

Regulations state that the Commission may conduct other examinations and audits from 

time to time as it deems necessary. 

Scope of Audit 

This audit examined original and amended reports filed by GJ20 12 before the audit 

notification Jetter was sent on December 3, 2012. 2 The audit also examined the original 

filings of the 2012 30 Day Post-General and Year-End reports. The following areas were 

covered by this audit: 

I. the campaign's compliance with limitations for contributions and loans; 

2. the campaign's compliance with the limitations for candidate contributions and loans; 

3. the campaign's compliance with the prohibition on accepting prohibited 

contributions; 

4. the disclosure of contributions received; 

5. the disclosure of disbursements, debts and obligations; 

6. the consistency between reported figures and bank records; 

7. the accuracy of the Statement ofNet Outstanding Campaign Obligations; 

8. the campaign's compliance with spending limits; 

9. the completeness of records; and 

10. other campaign operations necessary to the review. 

Inventory of Campaign Records 

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

audit fieldwork. GJ2012's records were materially complete and fieldwork commenced 

immediately. 

Committee Structure 

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

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

election activity for the Candidate. GJ20 12 opened two bank accounts: a primary 

account and a general account. In practice, GJ20 12 deposited nearly all contributions 

2 Amendments filed after December 3, 2012, were given a limited review to determine if issues noted in the 

Preliminary Audit Repo11 were corrected by GJ20 J 2. 

A.TTA.CH.IlENT 

Page L-.f --......-3_1.-J __ - of, L 
received before the Candidate's nomination in the primary account, and most 

contributions received after the nomination in the general account. GJ20 12 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. 

Audit Hearing 

2 

GJ20 12 requested an audit hearing. The request was granted and the hearing was held on 

May 13,2015. At the hearing, GJ2012 addressed issues related to Findings 2, 3 and 4 

(pp. 12 through 25), and the Additional Issue (p. 26). 

ATTACilllENT 

Page 5= __ o...,_f_.___3_7_1 -

j 
3 

Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration April 22, 2011 

• Date of lneligibility3 May5,2012 

• Audit Coverage April 1, 2011 -November 30, 20 !44 

Headquarters Salt Lake City, Utah 

Bank Information 

• Bank Depositories One ----

• Bank Accounts One primary checking account and one general 

checking account 

Treasurer 

• Treasurer When Audit Was Conducted Chet Goodwin 

• Treasurer During Period Covered by Audit Elizabeth Hepworth (4/22111- 1/4/ 12) 

Chet Goodwin (1 /5/12- Present) 

Management Information 

• Attended Commission Campaign Finance No 

Seminar 

• Who Handled Accounting and Paid Staff 

Recordkeeping Tasks 

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

to receive matching funds on May 24, 20 12. The period during which the Candidate was eligible for matching 

funds ended on May 5, 2012, his date of ineligibility (DOl). However, GJ20 12 submitted contributions for 

matching funds it had received before DOl. Due to the campaign's outstanding debt, GJ20 12 was ab le to submit 

primary election contributions received after DOl for matching as well. 4 The Audit staff conducted limited reviews of receipts and expenditures after December 31, 20 12 to determine 

whether the Candidate was eligible to receive additional matching funds. 

ATTACHJiEHT 

Page - (o --ot_L_"!'--3'--j--
Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand @) A~rill, 2011 $0 

Receipts 

0 Contributions from Individuals~ 2,249,318 

0 Matching Funds Received~> 510,261 

Total Receipts $ 2,759 579 

Dis bu rsem en ts 

0 Operating Expenditures 2,534,497 

0 Fundraising Disbursements 153,019 

0 Exempt Legal and Accounting 

Disbursements 28,130 

Total Disbursements $ 2,715,646 

Cash-on-hand@ December 31, 2012 $ 43,933 

5 GJ20 12 received approximately 24,500 contribut ions from more than 1,400 individuals. 

4 

6 As of the Candidate's DOl (May 5, 20 12), GJ20 12 had received no matching funds. GJ20 12 received 6 payments 

totaling $632,017 as of January 8, 20 13. 

ATTAC~T--~------­

Page 7 of, 3tj, · 
Part III 

Summaries 

Commission Findings 

Finding 1. Net Outstanding Campaign Obligations 

5 

The Audit staffs review ofGJ2012's financial activity through November 30,2014, and 

estimated winding down costs indicated that the Candidate did not receive matching fund 

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recommendation, GJ20 12 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 

Preliminary Audit Report. 

The Commission approved a finding that the Candidate did not receive matching funds in 

excess of his entitlement. (For more detail, seep. 8.) 

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

During audit fieldwork, the Audit staffs review ofGJ2012's receipts and disbursements 

determined that primary election funds were spent on non-qualified campaign expenses 

and that matching funds were received for contributions that were not eligible to be 

matched. 

In response to the Preliminary Audit Report recommendation, GJ20 12 provided 

additional information, and disputed the Audit staffs conclusion. 

The Commission determined that $333,441 is payable to the United States Treasury. (For 

more detail, seep. 12.) 

Finding 3. Use of General Election Contributions for 

Primary Election Expenses 

During audit fieldwork, the Audit staffs review ofGJ2012's receipts and disbursements 

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

receipts on primary election expenses prior to the Candidate's DOl. 

In response to the Preliminary Audit Report, GJ20 12 stated that the use of general 

election receipts for primary election expenses was an advance against anticipated 

matching funds. The Audit staff noted that short-tenn advances against matching funds 

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

funds amounts. 

ATTACWLENT 

Page 2" _.....,of-, _3_Lf __ 
6 

The Commission approved a finding that GJ20 12 used $12,936 in general election 

contributions for primary election expenses prior to the general election. (For more detail, 

seep. 20.) 

Finding 4. Reporting of Debts and Obligations 

During audit fieldwork, the Audit staffs review ofGJ2012'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, GJ20 12 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. GJ20 12 amended its reports to materially correct the disclosure of debts and 

obligations on Schedule D-P. 

The Commission approved a finding that that GJ20 12 did not disclose debts to nine 

vendors totaling $447,567, as required. (For more detail, seep. 22 .) 

Additional Issue 

Extension of Credit by a Commercial Vendor 

During audit fieldwork, the Audit staffs review ofGJ2012's disbursements suggested 

that NSON7 made a prohibited contribution to GJ20 12 by extending credit beyond its 

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

$1,752,032 from GJ20 12 for services rendered. 

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

proprietor ofNSON and redacted contracts to dispute the Audit staffs suggestion that 

NSON made a prohibited contribution to GJ20 12. The Audit staff did not consider these 

documents sufficient to verify that other clients were subject to the same billing practices 

or that GJ20 12 was regularly and timely billed for services rendered. 

The Commission did not approve by the required four votes the Audit staffs 

recommended finding that NSON made a prohibited contribution to GJ2012. Pursuant to 

Directive 70, 8 this prohibited contribution is discussed in the "Additional Issue" section. 

(For more detail, seep. 26.) 

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

GJ20 12 reported disbursements to Political Advisors, but all contracts and invoices were received from 

NSON. 8 Available at http ://www.fec.gov/directives/directive_70.pdf 

ATT!CH.W.EliT --+-----

Page 9 of, 3:1 
Summary of Amounts Owed to the United 

States Treasury 

• Finding 2.A. 

(p. 14) 

• Finding 2.B. 

(p. 18) 

Payment ofNon-Qualified Expenses 

with Primary Election Funds 

Receipt of Matching Funds Based 

on Ineligible Contributions 

Total Due U.S. Treasury 

ATTA.ClDLENT 

.---'----

pli£!'9 I () of L.. 3 Lj · ·• 

$332,191 

1,250 

$ 333,441 

7 
8 

Part IV 

Commission Findings 

I Finding 1. Net Outstanding Campaign Obligations 

Summary 

The Audit staffs review ofGJ2012's financial activity through November 30,2014, and 

estimated winding down costs indicated that the Candidate did not receive matching fund 

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recommendation, GJ20 12 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 

Preliminary Audit Report. 

The Commission approved a finding that the Candidate did not receive matching funds in 

excess of his entitlement. 

Legal Standard 

A. Net Outstanding Campaign Obligations (NOCO). Within IS days after the 

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

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

among other things: 

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

committee and capital assets listed at their fair market value; 

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

• An estimate of necessary winding-down costs. II CFR §9034.5(a). 

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

occurs first: 

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

• The 30th day following the second consecutive primary in which the candidate 

receives less than l 0 percent of the popular vote; 

• The end of the matching payment period, which is generally the day when the 

party nominates its candidate for the general election; or 

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

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

the calendar year. II CFR §§9032.6 and 9033 .5. 

C. Definition 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 . 

ATTACUJlEHT ---.: ___ _ 

Page J / 
• 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. 

9 

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

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

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

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

activity. 1 1 CFR §9034.4(a)(3 ). 

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

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

under 11 CFR §9034.5, that candidate may continue to receive matching payments for 

matchable contributions received and deposited on or before December 31st of the 

Presidential election year provided that he or she still has net outstanding campaign debts 

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

F. Winding Down Costs. A primary election candidate who does not run in the general 

election may receive and use matching funds after notifying the Commission in writing 

of the candidate 's withdrawal from the campaign for nomination or after the date of the 

party's nominating convention, if the candidate has not withdrawn before the convention. 

A primary election candidate who runs in the general election must wait until 3 1 days 

after the general election before using any matching funds for winding down costs, 

regardless of whether the candidate receives public funds for the general election. 

11 CFR §9034 .\l(d). 

Facts and Analysis 

A. Facts 

The Candidate 's date of ineligibility (DOI) was May 5, 2012. The Audit staffreviewed 

GJ2012's financial activity through November 30,2014, analyzed estimated winding 

down costs and prepared the Statement of Net Outstanding Campaign Obligations that 

appears on the following page. 

A.TTA.CHJtEliT / 

'Pa~e I J__--o.;....r_L__]_1 __ 
Assets 

Gary Johnson 2012, Inc 

Statement of Net Outstanding Campaign Obligations 

As of May 5, 2012 

Prepared February 10, 2015 

$ ( 1 0,856)9 

10 

Cash in bank 

Total Assets $ (10,856) 

Liabilities 

Accounts Payable (AP) for Qualified Campaign 

Expenses as of 5/5/12 

AP (Primary Account) Billed Post-DOI 

Winding Down (WD) Costs (5/5112- 12/6/12) 

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

Estimated WD Costs (121111 4- 6/30115) [b] 

Total Liabilities 

Net Outstanding Campaign Obligations 

(Deficit) as of May 5, 2012 

Footnotes to NOCO Statement: 

$ (l ,268,352) 

(713,952) 

0 

(22,899) 

( 112,268) 

$(2,117,471) 

$(2, 128,327) 

[a] The General election was held on November 6, 20\2. The winding down period began 31 days after 

the General election on December 7, 2012 . 

[b] Estimated winding down costs will be compared to actual wi nd ing down costs and adjusted 

accordingly. 

Shown below are adjustments for funds recei ved after the Candidate's DOI on May 5, 

2012 through January 8, 2013, the date GJ2012 received its last matching fund payment. 

I Net Outstanding Campaign Obligations (Def1cit) as of May 5, $(2,128,327) 

2012 

j Less: Contributions Received (May 6, 2012 to January 8, 1,216,661 

2013) 

! Less: Matching Funds Received through January 8, 2013 I 632,017 

' I Remaining Net Outstanding Campaign Obligations $ (279,649) 

I (Deficit) as of January 8, 2013 10 

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

entitlement. 

q The primary election campaign's May 5, 2012 cash balance was negative due to short term use of funds 

from the general election account. See Finding 3 on p. 20 for more detai l. 10 GJ2012 and its major vendor, NSON, are discussing the possibility ofwaiving the interest on debts not 

repaid. If this debt is forgiven, the NOCO will require an adjustment. See Additional Issue on p. 26 for 

additional detail. 

!TTA.C Hl£Eli 'l' ----~-- Pag.s I J Ji-./ of, • 
11 

B. Preliminary Audit Report & Audit Division Recommendation 

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

GJ20 12 representatives at the exit conference. The preliminary NOCO statement showed 

that GJ20 12 was in a surplus position and GJ20 12 would be required to repay some 

matching funds received to the U.S. Treasury. 

11 The Audit staff requested that GJ20 12 

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, 

GJ20 12 submitted additional invoices in support of debts incurred for primary election 

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

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

provided to the Audit staff for a debt incurred for fundraising activity in relation to the 

primary election. The Audit staff reviewed this documentation and revised the NOCO 

accordingly. As a result of this additional documentation, the revised NOCO indicated 

that the Candidate did not receive matching funds in excess of his entitlement. 

The Audit staff recommended that GJ20 12 demonstrate any adjustments it believes are 

required in connection with any part of the NOCO statement or provide any other 

additional comments. 

C. Committee Response to Preliminary Audit Report 

ln response to the Preliminary Audit Report recommendation, GJ20 12 did not dispute the 

NOCO calculations contained on the Preliminary Audit Report, however, provided 

additional bank statements and invoices to show actual and additional estimated winding 

down costs as well as additional accounts payable for qualified campaign expenses. 

These expenses have been incorporated into the revised NOCO that reflects a deficit of 

$279,649 as of November 30, 2014. The revised NOCO indicates that the Candidate did 

not receive matching funds in excess of his entitlement. 12 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ2012 submitted additional 

documentation and did not dispute the NOCO calculations. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ20 12 accepted the Audit staff's Net 

Outstanding Campaign Obligations calculations that show that the Candidate did not 

receive matching fund payments in excess of his entitlement. 

F. Audit Hearing 

GJ20 12 did not address Finding 1 during the audit hearing. 

11 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 . 12 GJ2012 and its major vendor, NSON, are discussing the possibility ofwaiving the interest on debts not 

repaid. If this debt is forgiven, the NOCO will require an adjustment. See Additional Issue on p. 26 for 

additional detail. 

ATTACHJiENT_--.L ___ _ 

Page /L-( 3 L/ of ._, _.:::.....-~.__-
Commission Conclusion 

On June 18, 2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission find that the 

Candidate did not receive matching fund payments in excess of his entitlement. 13 

The Commission approved the Audit staff's recommendation. 

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

Summary 

12 

During audit fieldwork, the Audit staff's review ofGJ2012's receipts and disbursements 

determined that primary election funds were spent on non-qualified campaign expenses 

and that matching funds were received for contributions that were not eligible to be 

matched. 

In response to the Preliminary Audit Report recommendation, GJ20 12 provided 

additional information, and disputed the Audit staffs conclusion. 

The Commission determined 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 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 with winding down the campaign and terminating political 

activity. II CFR §9034.4(a)(3). 

B. Definition 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 above). These include, for example, but are not limited to : 

13 The Audit staff notes that in the response to the PAR and the DFAR, GJ20 12 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 fund payments in excess of 

his entitlement. 

A'l'TACHWENT 

Page I )._..._,.......-o=-f -L -.3.....,.L(--
• Excessive expenditures. An expenditure which is in excess of any of the 

limitations under II CFR §9035 shall not be considered a qualified campaign 

expense. 

13 

• General election and post-ineligibility expenditures. Except for winding down 

costs pursuant to ll CFR §9034.4(a)(3) and certain convention expenses 

described in 11 CFR §9034.4(a)(6), any expenses incurred after a candidate's 

date of ineligibility, as determined under ll CFR §9033.5, are not qualified 

campaign expenses. In addition, any expenses incurred before the candidate's 

date of ineligibility for goods and services to be received after the candidate's date 

of ineligibility, or for property, services, or facilities used to benefit the 

candidate's general election campaign, are not qualified campaign expenses. 

• Civil or criminal penalties. Civil or criminal penalties paid pursuant to the Federal 

Election Campaign Act are not qualified campaign expenses and cannot be 

defrayed from contributions 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 reimburse 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, 

whether the committee demonstrates that it made conscientious efforts to 

safeguard the missing equipment; whether the committee sought 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. ll 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 expenses. 26 U.S.C. 

§9038(b)(2)(A). 

D. Seeking Repayment for Non-Qualified Campaign Expenses. In seeking 

repayment for non-qualified campaign expenses from committees that have received 

matching fund payments after the candidate's date of ineligibility, the Commission will 

review committee expenditures to determine at what point committee accounts no longer 

contain matching funds. In doing this, the Commission will review committee 

expenditures from the date of the last matching funds payment to which the candidate 

was entitled, using the assumption that the last payment has been expended on a last-in, 

first-out basis. 11 CFR §9038.2(b)(2)(iii)(B). 

E. Primary Winding Down Costs During the General Election Period. A primary 

election candidate who runs in the general election, regardless of whether the candidate 

.lTTACHlLENT_...__ __ _ 

Page { {p 
receives public funds for the general election, must wait until 31 days after the general 

election before using any matching funds for winding down costs related to the primary 

election. No expenses incurred by a primary election candidate who runs in the general 

election prior to 31 days after the general eJection shall be considered primary winding 

down costs. 11 CFR §9034.11(d). 

14 

F. How to Determine Repayment Amount for Non-Qualified Campaign Expenses 

When Candidate in Surplus Position. If a candidate must make a repayment to the 

United States Treasury because his or her campaign used matching funds to pay for nonqualified campaign expenses, the amount of the repayment must equal that portion of the 

surplus that bears the same ratio to the total surplus that the total amount received by the 

candidate from the matching payment account bears to the total deposits made to the 

candidate's accounts. 11 CFR §9038.2(b)(2)(iii). 

G. Bases for Repayment. 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 foJiowing: 

• Payments or portions of payments made on the 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 wiJI notify a candidate of 

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

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

the candidate (under 11 CFR §903 8.1 (d)) will constitute notification for purposes of this 

section. 11 CFR §9038.2(a)(2). 

Facts and Analysis 

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

1. Facts 

During an examination of disbursement records, the Audit staff identified 

$], 199,701 14 in disbursements for general election expenses paid with primary 

election funds. Of this amount, disbursements totaling $1,192,400 occurred during 

the period between the Candidate's DOI, May 5, 2012, and 31 days after the general 

election, December 7, 2012. During this period, expenses incurred are not considered 

primary winding down costs. Since these expenses are not related to the primary 

election of the Candidate, they are considered non-qualified campaign expenses. 

In the post-election wind-down period, when wind-down expenses must be allocated 

between the primary and general election campaigns, $7,301 was spent. 15 Since these 

1

' The initial amount of non -qualified expenses was subsequently reduced to $1,194,425 after the Audit 

staff calculated the matching funds cut-off date earlier (December 20, 20 12) than had been previously 

calculated. 

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

ATTAC1U4EHT ------- Page 17 ot'- 3 '1. 
15 

amounts were not allocated between campaigns, these are also non-qualified 

expenses. Additionally, the accounting stafffor GJ2012 stated that expenses 

identified by themselves, or by NSON, as general election expenses were paid from 

the general account, and expenses identified as primary expenses were paid from the 

primary account. Of the expenses identified by the Audit staff as non-qualified 

expenses, expenses totaling $1, 191,856 were paid out of the general account. 

After the Candidate's DOl, GJ2012 continued to raise funds to pay off the debt 

incurred during the primary election, as permitted by law. Approximately $1.2 

million in private contributions designated for the primary election were deposited 

into GJ2012's general election account, and were used to pay general election 

expenses. The Audit staff determined the private contributions designated for the 

primary election using the same calculations as 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. 

To determine which general election expenses were paid using the contributions 

designated for the primary election, the Audit staff followed the following 

procedures: 

l . Used the list 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 GJ20 12 's disbursement database of disbursements from the primary 

election account. The dates from GJ20 12' s database were the check dates 

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 the Audit staff in this review. The same procedure was 

followed for the review of the general election account. 

3. For each day analyzed, the Audit staff first smnmed 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, matching funds. 

4. The last day that any primary election contributions submitted for matching 

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

Therefore, the calculation of non-qualified campaign expenses from that 

account ended on that date. 

Following these procedures resulted in the most favorable repayment calculation for 

GJ2012 . 

Pursuant to 11 CFR §9038 .2(b)(2)(iii)(B), calculation of non-qualified expenses from 

all ofGJ2012's accounts would continue until no matching funds were left in any of 

the accounts. This "zero-out date" occurred on February 20,2014 . In order to 

completely and accurately calculate whether non-qualified expenses were paid with 

ATT.lCHltENT _ _..._ ___ _ 

'Page 18" 
16 

matching funds, the Audit staff needed information from GJ2012 about contributions 

rece ived so that the amounts received for the primary and general elections could be 

accurately recorded. Although this information was requested, GJ20 12 provided no 

contribution detail dated after December 31 , 2012. In addition, although the Audit 

staff requested bank statements, no bank statements for the general account were 

received after the November 2013 statement. This type of information is regularly 

requested from committees that have received federal matching funds. Without these 

bank statements, the Audit staff does not know what expenditures have been made 

and cannot determine if these expenditures were for the primary or general election. 

Given the lack of documentation, the Audit staff was unable to verify the receipts or 

expenditures after December 31, 2012 . However, the Audit staff was able to verify 

the date the last contribution submitted for matching funds was deposited to the 

general account. Thus, the Audit staff used December 20, 2012, as the cutoff date for 

examining the both accounts for non-qualified expenses.

16 

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

at 27.9053%. 17 This ratio applied to the non-qualified expenses equals a repayment 

amount of $334,780. 18 

2. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to GJ20 12 representatives at the exit conference 

along with schedules detailing the finding . GJ20 12 representatives did not comment 

on this finding . The Audit staff recommended that GJ20 12 demonstrate it did not 

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

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

recommend that the Commission determine that $334,780 19 is repayable to the U.S . 

Treasury. 

3. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report, GJ20 12 counsel stated that since 

qualified campaign expenses exceeded the amount of matching funds received by 

$95,585, " ... no matching funds were used to pay for non-qualifying campaign 

expenses ... ". In addition, GJ2012 claims that certain non-qualified campaign 

expenses totaling $1,220 identified by the Audit staff were paid solely with available 

general election funds. GJ20 12 also states that expenses totaling $7,301 identified as 

being unallocated between primary and general activities were not paid with 

matching funds but solely with general election funds. 

16 Aud it 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. 11 Matching funds certified as of 90 days post-DO! divided by deposits for the Primary election as of 90 

days post-DO! ($303,751 /$1 ,088,509 = 0.279053). 18 The ratio applied to the Audit staffs revised non-qualified expenses using an end calculation date of 

December 20,2012 (as explained in footnote 14) is $333,307. 19 See footnote I 8. 

ATTACHJLENT ----~---- 'Page 14 of 3J.{ 
17 

In each of the instances noted above, GJ20 12' s calculation fails to apply the amount 

of private contributions received and applied towards remaining net outstanding 

campaign obligations after the Candidate's DO I. Pursuant to II CFR §9034.4, " ... all 

contributions received by an individual from the date he or she becomes a candidate 

and all matching payments received by the candidate shall be used only to defray 

qualified campaign expenses ... ". Therefore, the Audit staff maintains that both the 

amount of private contributions and the amount of matching funds are applied to 

qualified campaign expenses. According to the Audit staff, this calculation continues 

to indicate that matching funds were part of GJ20 12 's account balance until February 

20, 2014 and prior to that time the identified non-qualified campaign expenses for the 

general election were paid, in part, with primary election matching funds and are 

subject to repayment. 

GJ2012's response also references newly discovered debts and other debts related to 

the Primary activity, including a $300,00020 win bonus owed to NSON, and states 

that these debts should be included in the calculation. In doing so, GJ20 12 asserts 

that this would move up the date on which Federal matching funds were no longer in 

the account, thereby reducing the repayment amount. 21 The Audit staff notes that 

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

considered in a repayment determination under II 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, GJ20 12 's response noted an expense incorrectly classified by Audit staff as a 

general election expense instead of a primary election expense. The amount of 

identified non-qualified campaign expense has been adjusted to be considered as a 

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

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

The Audit staff recommended that the Commission make a determination that 

$332,19 I is repayable to the U.S. Treasury. 

4. Draft Final Audit Report 

The Draft Final Audit Report acknowledged GJ20 12 's arguments for recalculation of 

non-qualified expenses. The Audit staff disputed those arguments and recommended 

that the Commission make a determination that $332,191 is repayable to the U.S. 

Treasury. 

10 GJ20 12 further states that the bonus is a qualified campaign expense, however, pursuant to I J CFR 

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

to be considered qualified campaign expenses. These bonuses have not been paid, therefore, the 

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

NOCO (Finding I, p. 8). 21 Non-qualified expenses paid after the candidate's accounts are presumed to have been purged of all 

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

funds. 

ATTACIDL.EliT _..._ __ _ 

'Page d--6 of 3'-f 
5. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ20 12 disputed the premise22 for the 

Audit staff's calculation of amounts owed to the U.S. Treasury and stated that 

GJ20 12 acted in good faith. 

6. Audit Hearing 

18 

Counsel stated that if it were not for the failure to update the disclaimer on GJ20 12 's 

website, GJ20 12 would have been compliant with the Matching Fund Act. Counsel 

stated that GJ20 12 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-DOl 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 non-matchable 

contributions separate. He further stated that he sees the Audit staff's calculations, 

based on commingled accounts, as an overbroad interpretation of the Kennedy case 

(Kennedy for President Committee v. Federal Election Commission (D.C. Cir. 

1984 )). Counsel explained that the accounts were separate, with all 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. Counsel 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 was also permitted to submit an additional statement after the audit hearing. 

This statement again addressed the legal premise for the method of calculation of 

repayment. 23 

Commission Conclusion 

On June 18, 2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission make a 

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

The Commission approved the Audit staff's recommendation. 

B. Receipt of Matching Funds Based on Ineligible Contributions 

1. Facts 

During an examination of receipts in audit fieldwork, the Audit staff identified five 

contributions designated to the general election totaling $8 ,000 that were submitted 

22 OGC has addressed GJ2012's arguments in its legal analyses on the DFAR and the Audit Division 

Recommendation Memorandum. 23 As stated in footnote 22. 

ATUCHWE.NT _..__., ___ _ 

Page c2 l of, :]ti, 
19 

for matching funds. These contributions were ineligible to be matched for primary 

election funds. The amount of matching funds awarded for these ineligible 

contributions was $1,250. 

2. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to GJ20 12 representatives at the exit conference 

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

on this finding. The Audit staff recommended that GJ2012 show that the 

contributions were not general election contributions or provide any other additional 

comments it deemed necessary. It was further stated that, absent such evidence, the 

Audit staff would make a recommendation that the Commission make a 

determination that $1,250 is repayable to the U.S . Treasury. 

3. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ20 12 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. 

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

is repayable to the U.S. Treasury. 

4. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ20 12 was investigating the 

ineligible contributions. The Audit staff recommended that the Commission make a 

determination that $1,250 is repayable to the U.S. Treasury. 

5. Committee Response to the Draft Final Audit Report 

In response to the DFAR, GJ20 I 2 agreed with the Audit staff's 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. 

6. Audit Hearing 

GJ20 12 did not address this part of the finding during the audit hearing. 

Commission Conclusion 

On June 18, 20 I 5, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission make a 

determination that $1,250 is repayable to the U.S. Treasury. 

The Commission approved the Audit staff's recommendation. 

A.TTACIDlEN'l' 

------ '?age ;J.:J- of , Jlj 
20 

Finding 3. Use of General Election Contributions for 

Primary Election Expenses 

Summary 

During audit fieldwork, the Audit stafrs review of GJ20 !2's receipts and disbursements 

during the pre-DO I period indicated that GJ20 12 spent $12,396 in general election 

receipts on primary election expenses prior to the Candidate's DO I. 

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

election receipts for primary election expenses was an advance against anticipated 

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

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

funds amounts. 

The Commission approved a finding that GJ20 12 used $12,936 in general election 

contributions for primary election expenses prior to the general election. 

Legal Standard 

Receipt of General Election contributions before the date of the Primary Election. 

(l) If the candidate, or his or her authorized committee(s), receives contributions that are 

designated for use in connection with the general election pursuant to II CFR § 110.1 (b) 

prior to the date of the primary election, such candidate or such committee(s) shall use an 

acceptable accounting method to distinguish between contributions received for the 

primary election and contributions received for the general election. Acceptable 

accounting methods include, but are not limited to: 

(i) The designation of separate accounts for each election, caucus or convention; or 

(ii) The establishment of separate books and records for each election. 

(2) Regardless of the method used under paragraph (e)(!) of this section, an authorized 

committee's records must demonstrate that, prior to the primary election, recorded cashan-hand was at all times equal to or in excess of the sum of general election contributions 

received less the sum of general election disbursements made. II CFR § 102.9(e). 

Facts and Analysis 

A. Facts 

During audit fieldwork, 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 GJ20 12 on primary election 

expenses prior to the primary election date (May 5, 20 12). Committees are not permitted 

to spend funds 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. 

Prior to the primary election, GJ20 12 received a total of $22,3 96 designated to the 

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

J.TTA-CHJLEUT 

------- 'Page J__ 3 of, 3LJ 
21 

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 Governor 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, GJ20 12 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 staffs review identified $12,396 in contributions designated 

to the general election that were spent on primary election expenses prior to the primary 

election date. These expenditures were identified as primary election expenses as they 

were bank fees incurred prior to the Candidate's DOl and payments on invoices 

submitted for various services incurred in connection with the Candidate's campaign for 

. nomination. In addition, no invoices for any services rendered in conjunction with the 

general election were received prior to the payment of these expenses. 

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 payments made using general election funds for primary 

election expenses prior to the candidate's DOI for the audited cycle. GJ2012 

representatives did not comment on this finding . 

The Audit staff recommended that GJ20 12 provide documentation to demonstrate that 

general election contributions were not used to fund primary election activity. In 

accordance with I 1 CFR §102.9, documentation should demonstrate that an acceptable 

accounting method was used. Absent such a demonstration, GJ2012 was to provide any 

additional comments it considered necessary with respect to this matter. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ20 I 2 stated that the 

$12,396 was treated as an advance against anticipated matching funds from the general 

election contributions to the primary election. 

To the extent that GJ20 12 is characterizing the advance of general election funds as a 

loan to the primary account, it is noted that regulations specify that such loans or 

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

not. It is also noted that short terrn loans to Presidential primary committees were 

obtained in the past, however, these loans were secured by matching 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 funds for GJ20 12 were 

not certifted 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. 

GJ20 12 stated that they" ... used an acceptable accounting method in accordance with 

1 I CFR § 1 02.9," and that there were separate accounts for primary and general election 

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

this report, in practice, GJ20 12 deposited nearly all receipts before DOl in its designated 

AT'l'ACHWT_-4-__ _ 

'Page J- 4 of, 31} 
22 

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

GJ20 12 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 GJ20 12 '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 date of deposit. 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged GJ20 12 's statement that the use of general 

election contributions was treated as an advance against anticipated matching funds, but 

the Audit staff disputed that an advance from general election contributions rather than 

from a lending institution was allowable. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ20 12 requested that the arguments made 

in response to the Preliminary Audit Report be reconsidered and requested an audit 

hearing to present its arguments. 

F. Audit Hearing 

During the audit hearing, Counsel agreed that GJ20 12 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 unreasonable 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 thought that it would 

be easy to tell if any committee was abusing this leeway. 

Commission Conclusion 

On June 18,2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission find that GJ2012 

used $12,936 in general election contributions for primary election expenses prior to the 

general election. 

The Commission approved the Audit staffs recommendation. 

I Finding 4. Reporting of Debts and Obligations 

Summary 

During audit fieldwork, the Audit staffs review of GJ20 12's disbursements indicated that 

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

and Obligations), as required. 

ATTACHMENT ::----.L---

Pa~e ;2_~ of, 3 Ll 
23 

In response to the Preliminary Audit Report, GJ20 12 submitted additional invoices for 

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

total of $44 7,567 in debts owed to nine vendors that were not disclosed on Schedule D-P 

as required. GJ20 12 amended its reports to materially correct the disclosure of debts and 

obligations on Schedule D-P . 

The Commission approved a finding that that GJ20 12 did not disclose debts to nine 

vendors totaling $447,567, as required. 

Legal Standard 

A. Continuous Reporting Required. A political committee must disclose the amount 

and nature of outstanding debts and obligations until those debts are extinguished. 

52 U.S .C. §30104(b)(8) and 11 CFR §§ 104.3(d) and I 04 .ll(a). 

B. Separate Schedules. A political committee must file separate schedules for debts 

owed by and to the committee with a statement explaining the circumstances and 

conditions under which each debt and obligation was incurred or extinguished. 

11 CFR§l04.ll(a). 

C. Itemizing Debts and Obligations. 

• Once it has been 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 reoccurring administrative expenses (such as 

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

11 CFR §104.ll(b). 

Facts and Analysis 

A. Facts 

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

the accounts 24 ofGJ2012's vendors.

25 These vendors provided GJ2012 with various 

campaign management services such as fundraising, accounting, clerical and 

administrative staff, and travel arrangements. 

The Audit staff identified debts to seven ofGJ2012's vendors totaling $407,455 that were 

not reported on Schedule D-P as required. Of these debts, $300,000 was owed to NSON 

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

for the Presidential general election. This bonus was incurred, per contract, as of the date 

of nomination, May 4, 2012, and should have been reported on the 2012 June Monthly 

report, covering the time period from May I, 2012 through May 3 1, 2012. 

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

the 20 I 1-20 12 campaign cycle. The Audit staff then determined whether any outstanding debts were 

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

over multiple reporting periods. 25 The Audit staff restricted this review to only primary campaign debts, as per the scope of this Aud it. 

ATT!CHllENT_~--­

Page :2& of, 3l-' ,, 
24 

It should be noted that GJ20 12 was invoiced for half of this debt ($150,000) on 

December 21,2012, and reported it on the 2012 Year-End report. However, the Audit 

staff maintains the debts should have been reported as debt for the entire amount based 

on the date and terms of the contract. The remaining reportable debts of$107,455 were 

for smaller amounts to all six vendors identified by the Audit staff. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to GJ20 12 representatives at the exit conference and 

provided schedules detailing the unreported debts for each reporting period covered by 

the audit. In response to the exit conference, GJ20 12 submitted one additional invoice 

for the other half of the bonus referenced in the "Facts" section above. This invoice was 

dated January 1, 2013. As ofthe date the Preliminary Audit Report was sent to GJ2012, 

this $150,000 had not been disclosed on any reports filed with the Cornrnission. 

The Audit staff recommended that GJ20 I 2 provide documentation demonstrating that 

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

documentation, the Audit staff recommended that GJ2012 amend its reports to disclose 

the outstanding debts. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ20 12 amended its 

reports and submitted 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. 

GJ20 12 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 staffhas thus identified nine vendors that GJ2012 

owed $447,567 that was not reported on ScheduleD-Pas required. GJ2012 filed 

amendments that materially corrected these omissions. 

ln its initial response to the Preliminary Audit Report, GJ2012 disputed that the $300,000 

owed to NSON for a bonus was not timely reported. GJ20 12 states that the NSON 

contract " ... specifically states that invoices are due and payable upon receipt," and that 

the vendor not invoicing timely does not create a reportable debt, since the campaign 

would not be able to base the debt reporting on an invoice. 

Pursuant to 11 CFR §I 04.11 (b), " [a] debt or obligation, including a loan, written contract, 

written promise or written agreement to make an expenditure .. . shall be reported as of the 

date on which the debt or obligation is incurred .. . " GJ20 12 made a written agreement on 

October 14, 20 11 , that NSON would be owed a bonus of "$300,000 for receiving any 

party nomination as either VP or President." Thus, this debt was incurred on the date of 

the Candidate's nomination by the Libertarian Party at its convention on May 5, 2012, 

ATTACIDLEl{T _ __._ ___ _ 

Page d.. I of, 3] 
and should have been reported as a debt or obligation on Schedule D-P on the June 

Monthly Report that covered May I, 2012 through May 31, 2012, regardless of when it 

was invoiced. 

25 

In a supplemental response to the Preliminary Audit Report, GJ20 12 stated that it has 

deferred to Audit staffs judgment that the $300,000 win bonus should be reported as of 

the date of the Candidate's nomination, despite not having been invoiced.

26 GJ2012 filed 

amendments to its reports to report this obligation as of May 2012. 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ2012 filed amendments to materially 

correct its reporting of debts and obligations. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ20 12 discussed its method of accounting, 

in which GJ20 12 "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.

27 GJ2012 also requested an audit hearing to 

address this matter. 

F. Audit Hearing 

During the audit hearing, Counsel stated that GJ20 12 had amended its reports to correctly 

report debts and obligations, and that there were no further substantive comments 

regarding this finding. 

Commission Conclusion 

On June 18, 2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission find that GJ2012 

did not disclose debts to nine vendors totaling $447,567, as required. 

The Commission approved the Audit staffs recommendation. 

26 GJ20 12 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 footnote 20 for additional detail), so this remains a 

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

method to pay this debt orr 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. 27 This argument perta ins to the calculations in Finding 2 of non-qualified expenses, not to the substance of 

Finding 4. 
Part V 

Additional Issue 

I Extension of Credit by a Commercial Vendor 

Summary 

During audit fieldwork, the Audit staffs review ofGJ2012's disbursements suggested 

that NSON28 made a prohibited contribution to GJ20 12 by extending credit beyond its 

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

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

26 

In response to the Preliminary Audit Report, GJ20 12 presented an affidavit from the 

proprietor ofNSON and redacted contracts to dispute the Audit staffs suggestion that 

NSON made a prohibited contribution to GJ20 12. The Audit staff did not consider these 

documents sufficient to verify that other clients were subject to the same billing practices 

or that GJ20 12 was regularly and timely billed for services rendered. 

The Commission did not approve by the required four votes the Audit staffs 

recommended finding that NSON made a prohibited contribution to GJ20 12. Pursuant to 

Directi ve 70,29 this prohibited contribution is discussed in the "Additional Issue" section. 

Legal Standard 

A. Contribution defined. A gift, subscription, loan (except when made in accordance 

with 11 CFR §100.72 and §100.73), advance, or deposit of money or anything of value 

made by a person for the purpose of influencing any election for Federal office is a 

contribution. The tenn "anything of value" includes all in-kind contributions. 

The usual and normal charge for a service is the commercially reasonable rate that one 

would expect to pay at the time the services were rendered. 

The provision of services at a charge Jess than the usual and nonnal charge results in an 

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

the usual and normal charge for the services and the amount the political committee was 

billed and paid. 11 CFR § 1 00.52(a) and (d). 

B. Corporate Contributions Impermissible. A corporation is prohibited from making 

any contribution in connection with a federal election. 52 U.S.C. §30118(a). 

C. Definition of Commercial Vendor. A commercial vendor is any person who 

provides goods or services to a candidate or political committee and whose usual and 

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

GJ20 12 reported disbursements to Political Advisors, but all contracts and invoices were received from 

NSON. 29 Available at http://www.fec.gov/directives/directive_70.pdf 

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normal business involves the sale, rental, lease or provision of those goods or services. 

11 CFR§116.1(c). 

27 

D. Extension of Credit by Commercial Vendor. A commercial vendor, whether or not 

it is a corporation, may extend credit to a candidate or political committee 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 Commission will consider whether: 

• 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 § 1 I 6.3(c). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staffs review ofGJ2012's disbursements suggested 

that GJ20 12 accepted a prohibited contribution that NSON made by extending credit 

beyond its normal course of business and not making commercially reasonable attempts 

to collect $1,752,032 from GJ2012 for services rendered relating to the primary 

election. 30 

On October 14, 20 I I, GJ20 12 entered into a contract with NSON to manage the 

campaign. NSON handled fundraising, press and media relations, creative advertising, 

and all administrative functions of the primary election campaign. Disbursements to 

NSON totaled 86% ofthe total of all disbursements by GJ2012, and 89% ofGJ2012's 

outstanding debt as of December 3 I, 2012 was owed to NSON . From April 2 I, 2011 

through December 2 I, 2012, NSON invoiced GJ20 12 $2,198,204 for campaign 

management expenses, including fundraising, clerical work, and travel arrangements. As 

of March 31,2013,$1,752,032 had been outstanding more than 120 days, and $936,247 

remains outstanding. To date, GJ2012 has only made payments of $1,26 I ,957 for the 

$2,198,204 invoiced by NSON. 

The terms ofthe contract between GJ2012 and NSON stated that: 

NSON may assess a carrying charge of eighteen percent ( 18%) per annum on payments 

not made within thirty (30) days of the date of the invoice. NSON may, at its sole 

discretion and without notice, suspend its services hereunder should Client not pay in 

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

ATT.A.CHkE.t{r 

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full any amount invoiced. NSON further reserves the right, at its sole discretion to 

withhold from Client any instruments of NSON's services pending payment on Client's 

account. 

28 

NSON had not assessed any interest charges as of March 31, 2013. During audit 

fieldwork, GJ20 12 did not provide Audit staff with documentation of attempts by NSON 

to collect on the outstanding debt. 

B. Preliminary Audit Report & Audit Division Recommendation 

The Audit staff presented this matter to GJ20 12 representatives at the exit conference and 

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

Audit staff requested that GJ20 12 provide evidence that NSON made commercially 

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

on January 17, 2014, GJ20 12 submitted an accounts receivable aging schedule for other 

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 3 I, 2013, for $245,527 in interest on the outstanding debts from GJ20 12 

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. 

GJ20 12 quoted an NSON response to a query the Committee had made to this vendor, 

Ongoing attempts have been made and continue to be made to collect the 

outstanding debt owed from the Gary Johnson 2012 campaign. These 

include support and help with continued solicitation for donations. Any and 

all other legal remedies are and will be considered to satisfy the obligation. 

The Audit staff reviewed the documentation submitted in response to the exit conference. 

Although GJ20 12 provided an internally generated aging schedule and a copy of a 

lawsuit filed, GJ20 12 did not provide any contracts with, or invoices to, other clients of 

NSON. As such, the Audit staff could not verify with a reasonable certainty that 

NSON's contract with GJ20 12 was offered on the same terms or pursued in the same 

manner as other NSON clients, political or non-political. 

In addition, on June 18, 2014, GJ20 12 submitted several new invoices for interest 

charged by NSON on debts outstanding from January 2014 through June 2014. 

The Audit staff recommended that GJ20 12 provide documentation, to include statements 

from this vendor that demonstrates the credit extended was in the normal course of 

business and did not represent an excessive in-kind contribution by the vendor. The 

information provided may include examples of other non-political customers/clients of 

similar size and risk for which similar services were provided and similar billing 

arrangements were used. Also, Audit staff recommended that GJ20 12 provide 

information concerning the presence of safeguards such as billing policies for similar 

non-political clients and work, advance payment policies, and debt collection policies and 

ATTJ.CHJI..E.NT _....___ __ _ 

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29 

practices to show that this was nonnal business practice for NSON or provide additional 

explanation about the situation. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report reconunendation, GJ2012 provided 

additional infonnation about the business practices ofNSON. In an affidavit, Ron 

Nielson, the proprietor of NSON, stated that his company did not extend credit to GJ20 12 

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 finance charges in favor 

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

discussions with GJ20 12 to accept campaign assets in lieu of payment. 

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 GJ20 12. Counsel for GJ20 12 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 pa~ments owed, and that NSON may waive 

interest fees "as is routine in such matters." 1 

The NSON contracts provided by GJ20 12 are redacted to the extent that the Audit staff 

cannot verify whether or not the clients are political or non-political. Since the nature of 

these entities cannot be verified, the Audit staff does not find these contracts to be 

adequate evidence that credit was extended to GJ20 12 in the same way as other political 

and non-political clients. 

Furthermore, documentation provided by GJ20 12 to show that NSON attempted to 

collect on outstanding debts did not show that "NSON regularly invoiced GJ20 12 for all 

services ... ". In fact, GJ20 12 was not invoiced for services in some cases until months or 

even more than a year after the services were performed. NSON did not submit invoices 

for interest due on amounts owed until December 31 , 2013, more than a year after the 

Candidate's date of ineligibility, for invoices that had been outstanding for thirteen ( 13) 

to twenty-two (22) months. In addition, no documentation such as invoices to other nonpolitical clients has been presented to show that NSON has also treated the collection of 

amounts due by non-political clients in the same manner. 

Pursuant to 11 CFR §9034.5(c), Presidential campaigns are required to report on the 

NOCO all capital assets whose purchase price exceeded $2,000, and other assets whose 

value exceeds $5,000, and maintain a list of these items. GJ20 12 did not disclose any 

31 lfGJ2012 and NSON come to an agreement to settle the Committee's debts for less than has been billed, 

GJ20 12 will need to tile a debt settlement plan and seek Commission review of this settlement, pursuant 

tol\CFR§\16.7. 

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assets on the NOCO statements submitted when applying for matching funds, nor were 

any lists provided to the Audit staff during fieldwork . The Audit staff requests that 

GJ20 12 submit documentation for any assets owned and not previously disclosed to the 

Commission. 

30 

The Audit staff notes that NSON had billed GJ2012 $345,333 in interest as of October 

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

billed by NSON to GJ20!2 by June 30, 2015 . Both of these amounts are reflected in the 

NOCO in Finding I 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 

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

Further repayment may also result if GJ20 I 2 discloses newly-discovered assets.32 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ20 I 2 submitted redacted contracts 

between NSON and other clients, and an affidavit from Ron Nielson, proprietor ofNSON 

that stated his company did not extend credit to GJ20 12 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 finance charges in favor of collecting on the principal. 

In addition, Mr. Nielson stated that NSON has engaged in discussions with GJ20 12 to 

accept campaign assets in lieu of payment. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ20 12 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. GJ20 12 further stated that it could not value the assets 

referred to in their response to the Preliminary Audit Report at this time, and that it will 

not pursue debt settlement until after the audit is completed. In its response to the Draft 

Final Audit Report, GJ2012 also requested an audit hearing to present the Committee's 

arguments. 

F. Audit Hearing 

During the audit hearing, Counsel stated that GJ20 12 does not believe that there was any 

extension of credit by NSON outside its 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 

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

adjustment. 

ATTACIUWiT _ _.._ __ _ 

Page 3 3 of, 3'-1 
31 

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 GJ20 12 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 GJ20 12 does not yet have a 

value. Counsel stated that GJ20 12 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 GJ20 12 must make a large repayment to the U. S. Treasury. 

Counsel addressed the Audit staffs assertion in the Draft Final Audit Report that it is 

unable to detennine whether the contracts between NSON and other clients indicate that 

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. 

Commission Conclusion 

On June 18 , 2015, the Commission considered the Audit Division Recommendation 

Memorandum in which the Audit staff recommended the Commission find that NSON 

made a prohibited contribution to GJ20 12 by extending credit beyond the nonnal course 

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

GJ20 12 for services rendered. 

The Commission did not approve, by the required four votes, the Audit staffs 

recommendation. Some Commissioners voted to approve the Audit staffs 

recommendation. Others did not, stating that they deemed the affidavit from Mr. 

Nielson, contracts showing substantially similar tenns offered to other clients, accounts 

receivable aging schedules for both GJ20 12 and other clients, and invoices for interest 

charged by NSON on outstanding debt sufficient to document that the billing practices 

were normal and usual. 

This contribution is discussed in the "Additional Issue" section pursuant to Commission 

Directive 70. 33 

33 Available at http ://www.fec.gov/directives/directive_?O.pdf. 

ATUCHM.ENl' 

Pagre 3j -~---
UB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

SENT VIA EMAIL AND FIRST CLASS MAIL 

Federal Election Commission 

Audit Division 

Mr. Tom Hintermister 

999 E Street NW 

Washington, DC 20463 

aud it@fec.gov 

September 4, 2015 

RE: Repayment Determination for Gary Johnson 2012 Inc 

Dear Mr. Hintermister: 

Pursuant to II C.F.R. § 9038.2(c)(2), I am writing to dispute the repayment determination in the 

Commission's Final Audit Report (' 'FAR' ') on Gary Johnson 2012 Inc ("GJ2012" or 

"Committee"). 

I. Request for a Hearing Before the Commission 

The Committee requests an opportunity to address the Commission to discuss the issues raised in 

this submission, and any others that may be relevant to the Committee's repayment obligation. 

II. The Commission's Presumption of Commingling is Inconsistent with FECA and with 

the Holding in Kennedy 

In the FAR, the Commission adopted the Audit Division 's finding that $332.191 was repayable to 

the U.S . Treasury for federal matching funds spent on non-qualified campaign expenses. It arrived 

at this figure by applying its repayment ratio to Committee expenditures on such expenses from 

both of the Committee's back accounts. Since only one of the Committee 's bank accounts ever 

contained federal matching funds, this methodology is not consistent with the Federal Election 

Campaign Act ("FECA' '), or with Kennedy for President Commillee v. FEC, 734 F.2d 1558 (D.C. 

Cir. 1984), and must be rejected. 

A. The Court in Kennedy did not Hold that all Private Primary and Federal Matching 

Funds are Commingled as a Matter of Law 

In Kennedy, the court held that the Commission has a duty to determine the amount of federal 

matching funds spent on non-qualified campaign expenses, and to limit any repayment obligation 

to that amount. Kennedy, 734 F.2d 1558. The court acknowledged that it may be difficult to 

determine precisely what amount of matching funds, as opposed to primary funds, was spent on 

non-qualified campa ign expenses, and therefore left it to the Commission to choose a method to 

estimate that amount. fd at 1563 . However, the Commission's discretion in this matter is limited 

to those methods that produce a reasonable estimate of the amount. !d. Although the difficulty in 

determining the amount of matching funds improperly spent may be caused in part by the 

commingling of primary and matching funds, the court did not hold, as the Office of General 

Counsel ("OGC") concluded, in its March 18, 2015, memo ("DFAR Memo"), that all primary and 

203 South Un1on Street • Su•te 300 

Alexandna, VA 22314 

202 · 210· 5431 (office) 202·4 78·0750(fax) 

www .DBCapitoiStrategies.com ATT.lCHlLENT _J"""""'<--- 'Page_....._ __ of. S: 
aB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

matching funds are considered commingled ·•as a mat1er of law.'' DFAR Memo at 2. This is not 

supported by the language of the opinion, and in fact clearly violates the court's express limitation 

of the Commission's discretion in choosing a method to estimate the amount of matching funds 

improperly spent. 734 F.2d at 1563 . 

In Kennedy, the court concerned itself with the specific facts of the case before it, and did not reach 

or even consider the issue of whether all primary funds and matching funds of all committees must 

always be deemed commingled. The court talks only about how the committee in that case, 

Kennedy for President Committee, handled its fin ances, and does not generalize the analysis to all 

committees that receive matching funds. See 734 F.2d at 1562, 1564, 1565 n.ll . Indeed, it would 

have been entirely unreasonable of the court to do so, given the huge variety in how different 

committees manage their finances. and in how much information the Commission will have about 

those finance s when conducting an audit. A repayment determination cannot be conducted using 

a one-size-fits-all methodology, with the Commission pre-determining the facts before knowing 

what they are. Rather, it must be a case-by-case analysis based on the facts as they are discovered 

and the information ava il able to the Commission at the time. 

In the in stant case, documents create by Audit Division staff in the ordinary course of the audit -

as opposed to an idiosyncratic and impracticable analysis that worried the court in Kennedy -

clearly demonstrate that the federal matching funds that the Committee received were only ever 

kept in the Committee's primary account, and that only a maximum of $2.510 in non-qualified 

campaign expenses could possibl y have been paid for with those matching funds. See FEC 

Calculation of Unqualified Expenses spreadsheet. This is information already available at no extra 

cost. and that can hardly be considered suspect, since it was Audit Division staff that prepared it. 

Nonetheless, the Commission has chosen to ignore it and rely instead on the statutorily 

unsupported presumption of commingling. The result is a determination that $332,191 in matching 

funds was improperly spent- which is simply factually erroneous- well over a hundred times as 

much as the FEC's own analysis says could actually have been spent. 1 

The Committee does not object to the Commission's usc of the repayment ratio in determining a 

repayment obligation, but rather to the way that the ratio was improperly applied to both sets of 

Committee accounts, instead of only that set which actually contained federal matching funds and 

from which payments for non-qualified campaign expenses were paid. If matching funds had in 

fact been commingled with the re-designated primary fund s (those originally segregated as general 

election contributions). then those primary funds should of course be included in the analysis. But 

if, as in the instant case, there is clear evidence that those fund s were not commingled, then there 

is no reasonable option but to exclude them. The Commission cannot simply opt to ignore evidence 

that contradicts the results of its chosen method of estimation. Such a method can only be 

reasonable - and therefore consistent with the requirements of Kennedy- if it takes those. and all 

1 Th~ Com mitt~~ alsn no t~: s that in its June 3, 2015 m~mo ("ADRM Menh>''), OGC sta t~ d that the Cnmm issinn has 

"cnntinuously consider~:d a publicly-funded committee's publi c and private fu nd s to be commingled as a matter of 

I all' under the authority of the Kennedy decision.'' ADRM Mt:mo at 3 n.3. This may well be the case. hut simply the 

fact that the Commission has been consistent in its interpretati on of Kennedy tells us noth ing about the va lidity of 

that in terpretati on. If the Commission was wrong when it tirst interpreted the case- as \1'1: maintain it was- then it 

is just as IITOng today when it repeats that in terpre tation. 

20 3 South Union Street • Su1te 300 

Alexandria, VA 22314 

202 · 210·5431 (office) 202· 4 78 ·0750(fax) 

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aB PAC • CAMPAIGN • NON - PROFIT • POLITICAL LAW 

other relevant facts into account. If the Commission refuses to do so in this case, its final 

determination cannot be considered valid . 

B. The Commission's Presumption of Commingling is Unreasonable in Section 

9038(b)(2) Repayment Cases 

In its ADRM Memo, OGC raises a second argument for treating all primary and matching funds 

as commingled: if there were no such presumption in place, committees could simply segregate 

their matching funds in a separate account, spend primary funds on non-qualified campaign 

expenses, and escape a repayment obligation by claiming, accurately, that no matching funds were 

spent improperly. ADRM Memo at 6. This argument does not in and of itself justify a presumption 

of commingling. 26 U.S.C. § 9038(b) gives three bases for repayment of matching funds: (1) when 

a committee receives more matching funds than it was entitled to, (2) when a committee spends 

matching funds on non-qualified campaign expenses, and (3) when a committee is in a surplus 

position after the end of the matching funds period. 

In the hypothetical OGC presents, it is tru e that a committee would be able to avoid repayment 

under section 9038(b)(2), but this is entirely proper. In Kennedy, the court made clear that the 

manner in which primary funds are spent has almost no bearing on a committee's obligations with 

regard to matching fund s. 734 F.2d at 1564, nn .S-9. Section 9038(b)(2) provides for repayment 

when '·any amount of any payment made to a candidate from tlte matching payment account was 

used for any purpose other than ... [qualified campaign expenses]" (emphasis added). This section 

makes no mention of private primary funds, or how a committee may spend them . In Kennedy, the 

court explicitly stated that treating primary funds like matching funds in the way the Commission 

does would be ··absurd and utterly dissolve[] the distinction, recognized by statute, between 

expenses paid out of matching funds and expenses paid out of private contributions." 734 F.2d at 

1564 n.9 (internal citation omitted). 

There is only one si tuation where section 9038 would provide for repayment when only primary 

funds were spent on non-qualified campaign expenses: if, but for the primary funds improperly 

spent, a committee would be in a surplus position, then repayment of some portion of matching 

funds would be avai I able under sect ion 9038(b )(3 ), and potentially 903 8(b )( I) as well. 

Though the Commission may consider this bad pol icy, the co urt in Kennedy held that repayments 

of matching funds are simpl y not appropriate where only private primary contributions were spent 

on non-qualified campaign expenses. except in the narrow case where the amount improperly spent 

exceeds the committee's deficit. 734 F.2d at 1564-65, n.l 0. The Commission is bound by the law 

as interpreted by the courts, and therefore must act consistently with this ruling. 

In the instant case, the Commission has acknowledged that "the [Committee] did not receive 

matching fund payments in excess of [its] entitlement," FAR at 12 (footnote omitted), and also 

that the Committee is in a deficit posi tion, even when accounting for the primary funds spent on 

non-qualified campaign expenses. See FAR at 10. Therefore, the Commission cannot pursue 

repayment under section 9038(b)(l) or (b)(3). The only alternative is 9038(b)(2), which is strictly 

limited to matching funds spent on non-qualified campaign expenses; the manner in which primary 

funds have been spent is therefore not relevant in determining the Committee's repayment 

203 South Union Street • Suite 300 

Alexandna, VA 22 314 

202·210 -543J(office) 202 ·478 ·07SO(fax ) 

www .DBCapitoiStrateQies .com 

....., 

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aB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

obligation. Any analysis which treats all Committee accounts as commingled runs directly counter 

to this imperative, and must be rejected . 

Therefore, the Commission must apply the repayment ratio to only those accounts which actually 

contained matching funds and could have spent them on non-qualifi ed campaign expenses- which 

we know in this case can only be the primary account. Doing otherwise could not result in a 

reasonable estimation ofthe amount of matching funds spent on non-qualified campaign expenses, 

as required by Kennedy. 

C. The Commission's Analysis is Unreasonable in this Case given the Committee's 

Good Faith Attempt to Comply with its Intended Disclaimer 

The Commission should reject the repayment determination adopted in the FAR because the highly 

particularized facts of the instant case clearly demonstrate that such a repayment obligation is a 

disproportionate penalty to what is, at root, a very minor error with respect to disclaimer language. 

The instant case is not a situation like the one imagined by OGC, where a committee is secretly 

attempting to circumvent the restrictions on its use of matching funds by using primary funds in 

their place. If a committee did attempt to abuse the leeway that OGC fears section 9038(b)(2) 

offers, it would be easily identified during an audit. The Committee is not such an actor, and cannot 

equitably be treated like one. 

The Committee only ever acted based on a good faith belief that the primary funds it was spending 

were actually general funds- a belief it maintained until after the election, when the Commission 

made the determination to the contrary. But for the oversight in updating its disclaimer language 

after the primary election, those funds would in fact have been general funds, and spending them 

in the way the Committee did would have been entirely proper and permissible. 

Section 9038 was not intended as a remedy for violations of the disclaimer rules. Requiring the 

Committee to repay such a huge amount, with money it does not have, based on an ex post reclassification of campaign funds - and a repayment determination in violation of FECA and 

relevant case law- is a clearly unjust result that the Commission must reject. 

III. Conclusion 

The Commission's policy of treating all of a committee's private primary funds and federal 

matching funds as commingled, regardless of how the committee actually managed these funds, 

violates the Commission's statutory obligation to reasonably estimate the amount of matching 

funds- and matching funds alone- that were spent on non-quali tied campaign expenses, as set 

forth in the Kennedy decision. 

The Commission may not ignore clear evidence that primary and matching funds were not 

commingled, regardless of the policy or enforcement ends it seeks to achieve. Similarly, the 

Commission may not rely on section 9038(b)(2) as justification to presumptively treat all primary 

and matching funds as commingled, because even in the contrived scenario presented by OGC, an 

appropriate repayment obligation is only achieved by not treating all funds as commingled. 

203 South Union Street • Suote 300 

Alexandria, VA 22314 

202-210-543 !(office) 202 -4 78-0750(fax) 

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aB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

Finally, irrespective of the approach the Commission decides to adopt going forward, the 

repayment obligation in the FAR must be rejected due to the facts and circumstances in this case 

showing that such an amount is wholly disproportionate to the inadvertent Committee erroridentified long afte r the campaign ended- that the Committee properly operated under. 

Sincerely, 

Is/ 

Joseph Lill y 

(805) 279-3973 Direct 

joe@dbcapitolstrategies.com 

CC: mfavin@fec.gov 

creminsky@fec.gov 

lholloway@fec.gov 

203 South Union Street • Su1te 300 

Alexandria, VA 22314 

202-210-543 !(office) 202 -4 7B ·0750(fox) 

www .0 BCapitoiStrategies .com ATTACIDOOl'l' _ ....,J ___ _ 

Pttol!'e £ of s-: 
aB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

SENT VIA EMAIL AND FIRST CLASS MAIL 

Federal Election Commission 

999 E Street NW 

Washington, DC 20463 

audit@fec.gov 

RE: Repayment Hearing for Gary Johnson 2012, Inc. 

Dear Commissioners: 

November 9, 20 I 5 

Following the repayment hearing on November 2, 2015, Gary Johnson 2012, Inc. CGJ2012" or 

·'Committee'') submits the following supplementary comments regarding the Commission's 

repayment determination. 

Although the Committee maintains that the Commission's application of the repayment ratio in 

this case exceeds its statutory authority under 26 U.S.C. § 9038(b), as interpreted in Kennedyfor 

President Commillee v. FE C. 734 F.2d 1558 (D.C. Cir. 1984 ), even the plain language of the 

Commission 's regulations fails to justify the repayment determination, as distinct from the 

calculation of any repayment ratio . 

The application ofthe repayment ratio to the amount of matching funds detennined to have been 

spent on non-qualified campaign expenses to arrive at the final repayment amount, pursuant to 11 

C.F.R. § 9038.2(b)(2)(iii), is the subsequent regulatory step after an initial determination of the 

amount of matching funds improperly spent, at § 9038.2(b)(i). Although the Kennedy court did 

give the Commission some discretion in estimating- rather than precisely calculating- the final 

repayment amount. it did not permit the sort of·'patently unreasonable" determination made in this 

case as to the amount of matching funds deemed to have been misspent. 734 F.2d at 1563. The 

commission is putting the repayment ratio cart before the determination horse 

Kennedy made clear, the misuse of private primary contributions is not relevant in calculating a 

repayment obligation: ·'the remedy prescribed under the administrative audit procedure is the 

repayment of the amount of(ederal money spent for unqualified purposes, not the total amount of 

unqualified expenditures." ld. at 1565 (emphasis in original). 

The total amount of matching funds the Commission determined to have been spent on nonqualified campaign expenses, under § 9038 .2(b)(i), erroneously used the formula designed and 

permitted only for repayment calculations, under§ 9038.2(b)(2)(iii). In reality, the audit division 

clearly determined that only$ I ,290.32- a scant one-fifth of one percent (0.2%)- were spent on 

20 J South Union Street • Suite JOO 

Alexandria, VA 22314 

202 ·210·543 ! (offi ce) 202·4 78-0750(fax ) 

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UB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

non-qualified campaign expenses 1

• See Calculation of unqualified expenses worksheet. The 

Commission incorrectly includes primary funds that had been believed to be, and treated as, 

general election funds and thus (under the belief they were general election funds) spent on general 

expenses in the determination, rather than the calculation of the repayment ratio. While the 

Committee concedes that the post hoc recharacterization by the commission of those general 

election funds to primary funds would result in unintentional and unknowing violation of II C.F.R. 

§ 9034.4(a), that does not change the statutory prohibition on including such amounts when 

determining the scope of a repayment obligation, as opposed to the calculation of the repayment 

ratio and amount. 

The presumptive commingling of Committee funds comes too early in the repayment 

determination process and is not justified by Kennedy or by the Commission's plainly read 

regulations. As a practical matter, this method can also result in a repayment obligation that is 

substantially less than the amount of matching funds actually misspent. 

If the Commission 's goal is to secure repayment of as much of a committee's improperly spent 

matching funds as possible, then presuming commingling when making the initial determination 

of that amount clearly seems wrongheaded. 

In any event, it is equally clear that the instant case is not one where a committee intentionally 

attempted to avoid a repayment obligation. As mentioned above, the Committee believed that the 

majority of the primary funds it received after the date of ineligibility ("DOl") were general 

election funds, and treated them as general election funds. It was not until the audit process that 

the designation of these funds was ever questioned. Even if, based on a flawed interpretation of 

Kennedy, the Commission wishes to ignore the physical separation of the matching funds in the 

primary account from the primary funds in the general account, it ought not and cannot ignore the 

mathematical and intellectual separation the Committee maintained between them. 

Physical separation is the most obvious line to draw between what can and cannot be included in 

the repayment determination . Failing that, however, mathematical separation provides an 

additional limitation on which amounts should be included when determining a repayment 

obligation. The Commission already recognizes this principle in some circumstances. In the Final 

Audit Report (''FAR"), it calculated the repayment ratio based on ;.deposits for the Primary 

election as of 90 days post-DOl." FAR at 16 n. 17. However, II C.F.R. § 9038.2(b)(2)(iii) states 

that the repayment ratio shall be the ratio that "the amount of matching funds certified to the 

candidate bears to the candidate's total deposits, as of 90 days after the candidate's date of 

ineligibility." ·Total deposits" is defined as ·'all deposits to all candidate accounts minus transfers 

between accounts, refunds, rebates, reimbursements, checks returned for insufficient funds, 

1 The Committee docs not contest that this amount is a proper repayment obligation owed to the U.S. Treasury. 

203 South Unoon Street • Suite 300 

Alexandria, VA 22314 

202 -2 t 0- 543t (offi ce) 202-4 7B -07SO(ra x) 

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aB PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

proceeds of loans and other similar amounts."§ 9038.3(c)(2). If this section were read literally, 

then the repayment ratio calculation would also have to include general election funds deposited 

as of 90 days post-DOL The Commission should of course not actually take such an approach, 

since general funds are entirely irrelevant to the repayment ratio, and it has reasonably interpreted 

this provision to not require that. 

However, this principle also extends to the initial determination of the amount of matching funds 

improperly spent. The primary funds in the general account that the Committee believed to be, and 

treated as general funds are just as irrelevant to this determination as the amount of general deposits 

is to the calculation of the repayment ratio. 

In light of the foregoing, we respectfully ask the Commission to reject the repayment determination 

in the FAR, separate the statutory determination from the statutory repayment obligation, and 

further make a corrected determination properly based on only those primary funds actually 

commingled- physically and mathematically- with the Committee's matching funds. 

Sincerely, 

Is/ 

Dan Backer 

(202) 210-5431 Direct 

dbacker@dbcapitolstrategies.com 

cc: jblume@fec .gov 

lholloway@fec .gov 

203 South Union Street • Suite 300 

Alexandna, VA 22314 

202 · 210 -543 ! (office ) 202·478 -0750(rax ) 

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