Nader ^08 

Gonzalez 

SENT VIA U.S. MAIL, E-MAIL, AND HAND DELIVERY 

September 1,2010 

Mr. Joseph F. Stolz 

Assistant Staff Director 

Audit Division 

Federal Election Commission 

Dear Mr. Stolz: 

The Nader for President 2008 Committee submits the attached response to the Audit Division's 

Preliminary Audit report dated June 30,2010. 

We have complied with the recommendations or have explained any dispute with the recommendations 

and made certain proposals for accommodations herein. 

If you have any questions concerning this response, please contact Assistant Treasurer Nell Crossan at 

610-613-1783 or myself at 404-585-8748. 

Sincerely, 

Nathan Coppernoli 

General Counsel 

cc: Ms. Sheraline L Thomas, MS 

Mr. Martin Favin 

Mr. Carl Mayer 

Mr. Neil Crossan 

Ms. Theresa Amato 

PAID FOR BY NADER FOR PRESIDENT 2008 

P.O. Box 34103, Washington, DC 20043 
The Nader for President 2008 Committee (the ''Committee" or "NFP'') submits the following response to 

the Audit Division's Preliminary Audit Report ("PAR") dated June 30,2010. 

1. Summary 

The Nader for President 2008 Committee disputes Finding 1 because the PAR contains 

calculation errors; these have now been resolved with the Audit Staff, and the revised calculation 

significantly lowers the amount received in excess of entitiement. The Committee also disagrees with 

Finding 1 because the Actual Winding Down Costs should be recalculated to reflect credit both for 

clearly-Identifiable primary-related expenses incurred after the date of Ineligibility ("DOI") and through 

the 31-day period after the General Election (until December 5,2008), as well as use a more reasonable 

ratio for costs Incurred after December 5,2008. With respect to Finding 2, the Committee reports that It 

has complied with all recommended amendments bythe Audit staffer has demonstrated where those 

amendments were unwarranted. With respect to Finding 3, the Committee notes that It disclosed the 

three lines of credit draws in Its Schedule C-P, and filed the Schedule C-P-1 and a copy ofthe line of 

credit agreement as soon as the Committee was made aware of its Inadvertent omission. 

li. Nader for President 2008 Committee's Responses to the Audit Staffs 

Findings and Recommendations. 

The Committee has complied with the Audit staffs recommendations or explains any 

outstanding disputes with the Audit staffs findings and recommendations provided in the PAR as 

follows: 

A. Nader for President 2008's Response to Finding 1, Net Outstanding 

Campaign Obligations. 

The Committee respectfully disagrees with the Net Outstanding Campaign Obligation ("NOCO") 

as of September 4,2008, as prepared by the Audit staff through December 31,2009, and presented In 

the PAR. The Audit staff found and recommended in Finding 1: 

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

estimated wmding down costs. Indicated that the Candidate received matching funds of 

$62,698 in excess of his entitlement. The Audit staff recommends that NFP provide 

evidence that the Candidate did not receive matching fund payments In excess of 

entitlement. Absent this evidence, the Audit staff will make a recommendation that the 

Commission determines that $62,698 Is repayable to the U.S. Treasury. 

PARBtA. 

The Committee disagrees with Finding 1 for four reasons: 

1. The PAR contained a miscalculated Actual Winding Down Costs line Item (12/5/08-12/31/09). 

After the Committee's discussion with the Audit Division staff, the Audit Division staff adjusted 
the NOCO contained within the PAR. The corrected figure alters the Net Outstandmg Campaign 

Obligations (Deficit) as of September 4,2008 and thereby lowers the Audit staffs finding of 

Federal Funds Received in Excess of Entitlement from $62,698 to $45,472. 

2. The Committee disagrees that all of Its expenditures for the period of November 5,2008 to 

December 5,2008 should be excluded as legitimate winding down costs. The application of 11 

CF.R. § 9034.11(d) (2010) (the "31-day rule") to the Committee excludes winding down costs 

obviously related to the primary election, including Itemized expenses Incurred with the 

Committee's compliance with this audit. 

3. The date of Ineligibility ("DOI") rule, as applied In the PAR, Is unfair to the Committee because It 

does not allow the recognition of clear primary-related ballot access expenses that uniquely 

apply to Independent and minor party candidates whose primary season is the ballot access 

petitioning process that goes on beyond the date ofthe last major party nomination. By 

prohibiting a date after the last major party's national convention, the DOI rule fails to recognize 

some primary-related expenses minor parties and Independents Incur based on the deadlines of 

state ballot access laws. The Committee urges the Commission to reconsider its DOI rule as it 

has the potential to discriminate against minor party and Independent candidates whose ballot 

access drives or minor party nominations may or may not be completed by the latest time a 

major party sets its convention dates. 

4. Given the timing of the Committee's audit, the Commission should reallocate winding costs 

from a 70/30 ratio between the primary and general accounts to a 100/0 ratio after December 

5,2008. 

These four reasons are further explained In detail as follows: 

2. The Audit staff revised its NOCO calculation to now recommend a repayment to 

the U.S.Treasury in the amount of $45^72. 

In Finding 1 ofthe PAR, the Audit staff recommended that the Commission determine that 

$62,698 was repayable to the U.S. Treasury for matching funds received in excess of entitlement. After 

examining the PAR, the Committee found a miscalculated Actual Winding Down Costs line item (12/5/08 

-12/31/09). The Committee then brought this to the attention of the Audit staff. It Is the Committee's 

understanding that the Audit staff has readjusted the NOCO, with a new NOCO provided to the 

Committee on August 18,2010 showing that the Net Outstanding Campaign Obligations (Deficit) as of 

September 4,2008 Is now $86,151.52.^ Accordingly, the actual amount of Federal Funds Received in 

^ The Audit staff credited the Committee with $77,898 in Actual Winding Down Costs for 12/5/08-

12/31/09. The Committee discovered that a breakout of how that number was calculated reflected the lack of 

tabulation of one ceil on the spreadsheet, unintentionally eliminating all Actual Winding Down Costs (calculated at 

70%) for the period 12/5/08-12/31/08, which should have been Included in the calculation as actual costs as they 

were not included anywhere else on the NOCO. This increased the Actual Winding Down Costs by another 

$45,937.64. Simultaneously, however, the Committee discovered that certain "memo entries" were double 

counted by the Audit staff erroneously. Although these are winding down costs, they should not be included In the 
Excess of Entitlement (subject to the ongoing actual reported winding down expenses) Is now calculated 

as $45,472. 

2. 77ie Commission shoukl not apply the 31-day rule, which excludes clearly Identified, 

primary-related winding down costs incurred by the Committee while the audit was 

being conducted. 

The Committee disputes the application of 11 CF.R. § 9034.11(d) (the "31-day rule") to the 

Committee because It does not permit a candidate who runs In the general election to use matching 

funds for primary winding down costs until 31 days after the general election. The Committee compiled 

with this rule and the NOCO reflects zero winding down costs for this period. The Committee urges the 

Commission to reconsider the "bright-line" 31-day rule, however, as the justifications for the rule are 

nonexistent here. 

During the operation ofthe 31-day rule, from November 5,2008 to December 5,2008, the 

Committee incurred a total of $252,475.10 in combined primary and general expenditures. All of its 

expenditures were paid with general funds, as required by the rule. Of this amount, $90,478 should 

have been paid for as winding down costs and $161,996.12 by the general account. In other words. In a 

month fbr which the Committee was given zero credit for actual winding down costs, 36% ofthe 

Committee's expenditures immediately following the general election were demonstrably winding down 

costs. 

The Committee notes that no Nader 2008 primary matching funds or any primary monies were 

permitted for any expenses Incurred in the "general eiection" period through December 5,2008 

because ofthe prohibition presented in 11 CF.R. § 9034.11(d): 

A primary election candidate who runs In the general election, regardless of whether 

the candidate receives public funds for the general election, must wait until 31 days 

after the general election befbre 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 election shall be 

considered primary winding down costs. 

With respect to the Nader Committee In 2008, the 31-day rule produced a paradoxical result. 

The rule operated to punish the Committee for quickly and efficiently meeting its audit obligations 

under federal election law. The Audit staff was on the Committee's premises from November 13,2008 

for the entrance Interview, and for fieldwork from November 17,2008 through December 9,2008. The 

NOCO calculation because they are already included in the NOCO calculation elsewhere. This decreased the Actual 

Winding Down Costs in the NOCO by $17,259.67. Accordingly, the net adjustment resulted In the Actual Winding 

Down Costs line item for the period of 12/5/08-12/31/09 amounting to $106,576.04. The Audit staff also updated 

the Actual Winding Down Costs from 01/01/10-06/30/10 to $5,261.00. The Audit staff then estimated the 

Projected Winding Down Costs from 07/01/10-03/31/11 at $19,950, thus arriving at total obligations of 

$230,671.50, and a Net Outstanding Campaign Obligations as of 9/4/08 of $86,151.52. 
Committee provided to the Audit staff in September2008, during the course ofthe general election and 

pursuant to an August2008 request for documents, preliminary information Including bank statements, 

receipts and disbursements database, copies of contributor checks greater than $50, deposit batches, 

contributor cards/best effort letters, loan documents, and credit card statements. During both the 

general election period of September 4,2008 to November 4,2008 and the post-general election period 

from November 5,2008 to December 5,2008, the Committee incurred substantial expenses fbr primary 

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

personnel, counsel, and support staff expenses. See 11 C.F.R. § 9038.1(b) (2010). It Is because ofthe 

reality that such primary election winding costs are Incurred by a general election candidate during the 

general election campaign that the Commission should revisit the rule prohibiting primary winding down 

expenses until 31 days after the general eiection. It makes little policy sense to prohibit a general 

election candidate from promptly settling primary matters until 31 days after the general election; such 

practice merely delays the settlement of primary related Issues. 

The bulk of the field work for the Committee's audit of its primary election expenses was 

conducted on the Committee's premises, with Committee staff cooperation, during the 31-day period. 

Federal regulations required the Committee to provide space to the Audit staff to conduct their audit. 

See 11 C.F.R. § 9038.1(b)(l)(i) ("[o]n the date scheduled for the commencement of fieldwork, the 

candidate or his or her authorized commlttee(s) shall provide Commission staff with office space and 

committee records..."). Yet, despite the Committee incurring federally-mandated primary winding 

down expenses during the 31-day period, the 31-day rule prohibits applying matching funds for these 

expenses. 

In the Explanation and Justification for 11 CF.R. § 9034.11(d) quoted in the PAR, the rationale 

for the 31-day rule was two-fold. See 68 Fed. Reg. 47409,47410 (Aug. 8,2003); see also PAR at 10. First, 

the Explanation and Justification expects that the "small amount of administrative costs" related to 

terminating the primary campaign during the general election would be offset by general election start 

up costs Incurred by the primary committee. Id. Second, it states that the rule Is consistent with the 

Commission's other bright line rules for allocating expenses between the primary and general 

campaigns at 11 CF.R. § 9034.4(e) (2010). Id. 

Neither of those justifications for the 31-day rule Is present here. First, the audit and pre-audit 

work occurred during the general election time period, and a fiiii 36% ofthe total expenditures within 

the 31-day post election cannot be characterized as de minimis "administrative costs" offset by de 

minimis general election start-up costs. Second, this unfair result is inconsistent with the objectives of 

11 C.F.R. § 9034.4(e) - to reach an equitable mechanism for allocating expenses between the primary 

and general elections. Because neither of the justifications behind the 31-day rule Is present, the 

Commission should reevaluate the rule's application. Finally, while these primary-related audit and 

administrative costs during the 31-day period may be de minimis In the context of a major party 

campaign they represent a far larger and more burdensome proportion of an independent candidate's 

total campaign expenditures and the operation ofthe rule imposes a material hardship on minor party 

or Independent committees. 
On October 19,2009, the Committee submitted excel files to the Audit staff that contained 

detailed spreadsheets itemizing each of these winding down-related expenses Incurred during 

November 5,2008 to December 5,2008 in the amount of $90,478.98. Moreover, the Committee 

provided corresponding receipts correlated to each itemized expense on the spreadsheets. The 

Committee should be allowed full credit for the primary Winding Down Costs incurred during the 

November 5,2008 to December 5,2008 period. If not, at the very least, the Commission should grant 

the Committee a 7096 credit because not only Incidental primary winding down costs occurred during 

the 31-day period (as assumed by the rule's Explanation and Justification). In fact, the bulk ofthe audit 

field work and its related primary winding down expenses. Including those mandated by regulation, 

occurred during this time frame. If neither of these issues (the 31-day rule or the reasonable allocation 

ratio) are resolved In the Committee's favor, the Committee could be put In the untenable position of 

having to now raise funds to make a repayment for not being credited for expeditiously seeking to 

terminate. 

5. The DOI rule, as applied to the Committee, assigns a date that fails to capture critical 

primary-related expenses and thus should be modified with respect to Mr. Nader and 

other similarly situated minor party and Independent candidates. 

The Committee also disagrees with Finding 1 ofthe PAR and the NOCO statement because of 

how the Commission currently interprets the winding down rules as applied to a candidate who receives 

primary matching funds, goes on to the general election, but does not receive general election public 

funding. The current bright-line date of ineligibility rule ("DOI") can become unfairly onerous to some 

candidates running outside ofthe two major parties. Including Mr. Nader.^ Respectfully, the Committee 

urges the Commission to establish a fairer DOI policy that captures a larger percentage of true primary 

related expenses. 

The Committee agrees that under the Commission's current application ofthe regulations, the 

date of ineligibility of September 4,2008 is calculated correctly. This regulation pegs the minor 

party/Independent candidate's date of Ineligibility as "the last day of the last national convention held 

by a major party" to hold a nominating convention, if candidate had not already beconrie Ineligible 

because he ceased to be active In more than one state or had exceeded 30 days following a second 

consecutive primary in which the candidate receives less than 10 percent ofthe popular vote. See 11 

CF.R. § 9032.6 (2010); see also 11 CF.R. § 9033.5 (2010). Furthermore, 11 CF.R. § 9034.4(e)(1) 

essentially treats expenditures prior to the DOI as primary and after the DOI as general. 

The Committee contends, however, that the DOI as applied is unfair because state law Imposes 

continuing ballot access hurdles that last well after the last date on which one ofthe major parties hold 

its nominating convention. Under the current DOI rule, minor party and Independent candidates' DOI 

are set by their competitors' selection of dates for their nominating conventions. But minor party and 

' For the past three election cycles, the DOI regulations have applied to Mr. Nader's campaigns uniquely as 

he is the only minor party or Independent candidate outside the two major parties to both qualify for and receive 

only primary matching funds, and to then run in both the presidential primary and general elections. (Mr. 

Buchanan in 2000 received both primary and general election funds.) 
Independent candidates are also subject to 50 different state rules (plus the District of Columbia) on 

ballot access. Often, ballot access deadlines occur after the major parties hold their nomination 

conventions. For example, in the 2008 presidential election, seven states had ballot access deadlines of 

September 5,2008 or later. There are six additional states that had a deadline of September 2,2008. 

Accordingly, no less than 13 states— one fourth ofthe states In the United States—have ballot 

deadlines in September. Nine more states had deadlines on August 15,2008 or thereafter, raising the 

total to 22 states with deadlines between mid-August and September. If both major parties were to 

schedule their conventions before mid-August or earlier, minor party and Independent candidates 

seeking minor party nominations, would be unable to count as primary expenses the expenditures fbr 

nearly half of their ballot access drives or nominations for the electioni See Ballot Access News, 

September 1,2008, Vol. 24. No. 5 at http://www.ballot-access.Org/2008/090108.html#13. Thus, minor 

party and Independent candidates incur Indisputably primary-related expenses, ballot access 

expenditures that the DOI rule disqualifies because the major parties finished their primary election 

responsibilities. 

Specifically with respect to the Committee's experience, bills coming due for up to thirteen 

ballot drives or party nominations occurring in September were cut off arbitrarily on September 5,2008, 

the day after the Republican party chose to hold its convention. From September 5 to November 4, 

2008, the Committee spent at least an additional $3,904.53 worth of primary ballot access expenses and 

can provide documentation fbr those expenditures. These expenditures were made out of general funds 

because ofthe DOI rule. For the PAR to state that "[l]n Mr. Nader's case, he has been given the benefit 

ofthe longest possible primary period" and that "(tjherefore, expenses between September 5, and 

November 4,2008, cannot be considered primary election expenses," is a conclusion totally devoid of 

the context In which minor parties and Independent candidates operate. See PAR at 9. The rule does not 

comport with the policy of one quarter of the states In this country, which provide for ballot access 

deadlines well into September for Independent candidates - effectively the independent candidate's 

primary - substantially beyond the date fbr the 2008 Republican convention. Nor does It comport with 

the Commission's advisory opinions on this matter which treat ballot access expenditures as primary 

qualified expenditures.^ The Committee urges the Commission to harmonize the date of ineligibility rule • 

with State ballot access law by permitting Mr. Nader and similarly-situated candidates to have a DOI 

consistent with the deadlines to qualify for the ballot in all 51 jurisdictions. The primary date fbr 

Independent and.minor party candidates should be deemed to have continued beyond the date for the 

Republican Convention and the DOI set accordingly. 

4. The Commission should increase the 70/30 ratio by whidi winding down expenses are 

credited to 100/0 after Decembers, 2008. 

See, e.g.. Advisory Opinion 1995-45 ("It has long been the view of the Commission that, for non-major 

party candidates, the process by which they satisfy the requirements of State law governing qualification for a 

position on the general election ballot serve purposes similar to a primary election or other nominating process.") 

(Additional citations omitted). 
The Committee believes that the Commission should Increase the ratio of primary to general 

expenses credited as winding down expenses from December 5,2008 to date and through termination 

given the timing of Committee's audit. Regulation 11 CF.R. § 9004.11(c) (2010) provides the Audit staff 

with the flexibility In determining a reasonable allocation, by allowing: 

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

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

reasonable allocation method. An allocation method Is reasonable if it divides the total 

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

In no less than one third of total winding down costs allocated to each committee. A 

candidate may demonstrate that an allocation method Is reasonable even If either the 

primary or the general election committee is allocated less than one third of total 

winding down costs. 

Notably, nothing in 11 CF.R. § 9034.11(d) prohibits crediting the Committee as having expended 

Its general election winding down costs during the post general election period within the 31 days; 

indeed the regulation solely refers to not using the primary matching funds for this period and primary 

winding down costs. See 11 CF.R. § 9034.11(d). 

The Nader campaign In 2008 spent of its total combined resources, approximately 70% on the 

Primary election and 30% on the General election. If the Committee is not credited with winding down 

expenses during the 31-day rule, $90,478.98 in winding down expenses will be booked as having been 

paid with General funds while they were in actuality all winding down expenses. If the Commission 

applied a 70:30 ratio of Primary to General actual winding down costs, which comports with the overall 

expenditures (both Primary and General) ofthe entire campaign, and If this ratio were to hold for 

winding down costs from November 5,2008 through termination, $90,478.98 is 30% of $301,593. One 

would expect total Primary Winding Down Costs to be In the vicinity of $211,115, the remaining 70%: 

Yet, the Committee is only credited with approximately $132,000,70% of total primary winding down 

costs fbr the post 12/5 time period. Including projected winding down costs. This reflects an improperly 

Inverted ratio of the total primary to general expenses for the winding down period. The Committee 

spent more than 2/3 of its total expenditures on primary expenses, yet It Is not being credited for these 

expenditures for the primary winding down during the entire winding down period. Providing the 

Committee with 100% credit for the post December 5,2008 period only begins to address the overall 

Imbalance caused bythe application ofthe DOI and 31-day rules. 

Moreover, there Is precedent and support for this 100% allocation In the determinations made 

in the Nader 2000 Audit Report. During this audit, similar issues were raised on the then novel question 

concerning how to treat a candidate who receives primary but not general election funding. In the 

Nader 2000 Audit Report, all expenditures from June 1,2001 to termination were credited at 100% fbr 

Primary Committee because the actual audit began in August 2001. See Attachment A, page 11. In this 

election cycle the actual audit began in November 2008. Using the rationale In the 2000 NOCO, the 

Committee believes that it Is reasonable to credit the Committee with Incurring winding down expenses 

during November, the audit time frame, and that it Is certainly reasonable to credit any expenses 

8 
Incurred after December 5,2008 at 100%. The Nader campaign's early cooperation to make an 

expeditious audit In November 2008 should not operate to deprive it of proper credit for primary 

winding down expenses. 

B. Nader for President 2008 Committee's Response to Finding 2, 

Misstatement of Financial Activity. 

The Committee reports that It has amended Its disclosure reports to correct any restatements or 

has clarified with the Audit staff items that were not misstated. It Is the Committee's understanding that 

following these amendments and clarifications with the Audit staff, there are no further amendments 

recommended at this time. 

In Finding 2, the Audit staff found and recommended: 

A comparison of NFP's reported figures to Its bank records revealed that from January 4, 

2008 through August 31,2008, receipts were overstated by $17,106; disbursements 

were understated by $74,599; and, ending cash was overstated by $91,705. The majority 

ofthe disbursements understatement was due to transfers NFP made to its General 

committee which were not reported. The Audit staff recommends that NFP 

amend Its disclosure reports to correct the misstatements. 

PAR at 4. The Committee further notes that the Audit staff Identified these transfers as "mainly 

contributions to NFP wh^e the contributors had exhausted their contribution limitation to NFP and the 

excessive portion of the contribution was properiy redesignated to the Nader General." PAR at 12 

(emphasis added). Pursuant to the Audit Staffs recommendations and subsequent discussions since the 

issuance ofthe PAR on how to file amendments: 

* The Committee has amended its reports to correct any misstatements and has clarified with the 

Audit staff certain Items that were not misstated;^ and 

• The Committee has amended the cash balance on Its most recently filed report with an 

explanation that It resulted from audit adjustments from a prior period. 

Following amendment of these reports and consultation with the Audit staff, it is the Committee's 

understanding that there are no additional reports that are recommended fbr amendment. 

C. Nader for President 2008 Committee's Response to Finding 3, Disclosure 

of Loans 

As noted In the PAR, the Committee secured a line of credit totaling $500,000 on June 25,2008, 

repayable by September 3,2008. See PAR at 14. A total of $300,000 was drawn against this line of credit 

^ For example, the PAR on page 12 noted a misstatement of $13,725 In contributions that had been 

reported correctly and should be removed from the Finding. 
in three separate transactions. Id. On each occasion the Committee made a line of credit withdrawal 

(June 27,2008; July 10,2008; and August 22,2008), the Committee timely disclosed these withdrawals 

on its reports, filing Schedules C-P for each ofthe three line of credit draws. Id. The first withdrawal was 

just two days after securing the line of credit and timely reported. In the same report covering the 

period when the loan was obtained, thereby disclosing the existence ofthe loan. 

In Finding 3, the Audit staff stated the following: 

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

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

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

amendments will be necessary for the line of credit disclosure. 

Id. 

None ofthe Committee's staff involved at the time of obtaining the loan were aware ofthe 

additional requirement to also file a Schedule C-P-1 or a copy ofthe line of credit agreement until they 

were alerted of this requirement by the Audit Division once the Audit began in November 2008. As 

rioted, the Committee disclosed each of three lines of credit draws in Its Schedules C-P. At that time the 

Committee became aware of the need to file a C-P-1 instead of a C-P, along with a copy of the loan or 

line of credit agreement, the Committee took immediate corrective action to address this unintentional 

oversight. In light ofthe Nader campaign's history of prompt compliance with FEC mandates this should 

be seen as a de minimis oversight that was corrected Immediately upon notification. 

III. CONCLUSION 

Thank you for this opportunity to respond to the Audit staffs findings and recommendations. 

You can be assured ofthe Committee's continued cooperation. 

Sincerely, 

Nathan Coppernoli 

General Counsel 

10 
ATTACHMENT 
FEDERAL ELECTION COMMISSION 

WASHINGTON. D C .>(Mb< 

November 27,2002 

MEMORANDUM 

TO: RON M. HARRIS 

PRESS OFFICER 

PRESS OFFICE 

FROM: JOSEPH F. STOLTZ 

ASSISTANT STAF; 

AUDIT DIVISION 

IRECTOR 

SUBJECT: PUBLIC ISSUANCE OF THE FINAL AUDIT REPORT ON 

NADER 2000 PRIMARY COMMITTEE. INC. 

Attached please find a copy ofthe final audit report and related documents on 

Nader 2000 Primary Committee, be. that was approved by the Commission on November 

14,2002. 

All parties involved have received informational copies of die report and the report 

may be released to the public. 

Attachment as stated 

cc: Office of General Counsel 

Office of Public Disclosure 

Reports Analysis Division 

FEC Library 

REPORT OF THE AUDIT DIVISION 

ON THE 

Nader 2000 Primary 

Committee, Inc. 

November 14,2002 

FEDERAL ELECTION COMMISSION 

999 E STREET, N.W. 

WASHINGTON, D.C. 

NADER 2000 PRIMARY COMMITTEE, INC. 

TABLE OF CONTENTS 

Page 

Executive Summary 1 

Final Audit Report 3 

Background 3 

Findings 5 

Legal Analysis 15 

Transmittal to Committee 23 

Chronology 25 

FEDERAL ELECTION COMMISSION 

WASHINGTON. DC 2n4h{ 

NADER 2000 PRIMARY COMMITTEE, INC. 

EXECUTIVE SUMMARY 

Nader 2000 Primary Committee, Inc. (NPC) registered with the Federal 

Election Coinmission on February 18,2000, as the principal campaign conunittee for 

Ralph Nader (the Candidate), a candidate for nomination ofthe office of President ofthe 

United States. 

The audit is mandated by Section 9038(a) of Title 26 oftiie United States 

Code, requiring the Commission to audit committees authorized by candidates who 

receive Federal Funds. The Candidate received $723,308 in nuitchmg fimds fiom die 

U.S. Treasury. 

The findmgs ofthe audit were presented to NPC at the exh conference 

held on Januaiy 18,2002 and in the Preliminary Audit Report (PAR). NPC's responses to 

the findings are contamed in the audit report. 

The following is an overview of the findings contained in the audit report. 

DETERMINATION OF NET OUTSTANDING CAMPAIGN OBUGATIONS -

11 CFR §9034.S(a) and 9034.1(b). A Statement of Net Outstanding Campaign 

Obligations was prepared to detennine NPC*s financial position as of the Candidate's 

date of ineligibility, August 17,2000. The Audit staff concluded that NPC did not 

receive matching funds in excess of its entitlements. 

^TAl.R-Pi^TED CHECKS -11 CFR §9038.6. The Audit staff identified 24 

stale-dated checks totaling SI 1,398. The Commission determined that these amounts are 

payable to the U.S. Treasury. 

I of 25 
Page 2 of 25 
FEDERAL ELECTION COMMISSION 

WASHINGTON. D C 20461 

REPORT OF THE AUDIT DIVISION 

ON 

NADER 2000 PRIMARY COMMITTEE, INC 

I. BACKGROUND 

A. AUDIT AUTHORITY 

This report is based on an audit of die Nader 2000 Primary Conunittee, 

Inc. (NPC). The audit is mandated by Section 9038(a) of Title 26 of die United States 

Code. That section states, "After each matching payment period, the Commission shall 

, conduct a thorough examination and audit ofthe qualified campaign expenses of every 

candidate and his authorized committees who received payments under section 9037.** 

Also, Section 9039(b) of Titie 26 ofthe United States Code and Section 9038.1(a)(2) of 

Titie 11 of die Code of Federal Regulations state that the Commission may conduct other 

examinations and audits fiom time to time, as it deems necessary. 

In addition to examining the receipt and use of Federal funds, the audit 

seeks to determine if the campaign has materially complied with die limitations, 

prohibitions, and disclosure requirements of the Federal Election Campaign Act of 1971 

(the Act), as amended. 

B. AUDIT COVERAGE 

The audit covered the period from NPC*s first bank transaction, 

February 8,2000 througfa December 31,2000. NPC reported an openmg cash balance of 

$-0-, total receipts of $3,691,792, total disbursements of $3,368,307 and a closmg cash 

balance of $323,485'. In addition, a limited review of NPC*s financial activity and 

disclosure reports for the period ftom January 1,2001, through June 30,2002, was 

conducted to determine its matching fund entitlement based on its financial position. 

C. CAMPAIGN ORGANIZATION 

NPC registered with the Federal Election Commission (the Commission) 

on Febniary 18,2000 as the principal campaign committee for Ralph Nader (the 

Candidate), a candidate for nomination for the office of President of the United States. 

' The amounts were calculated from amended reports-filed by NPC. 

Page 3 of 25 
NPC currentiy maintains its headquarters m Washington, D.C. NPC*s 

Treasurer from inception until June 9,2000 was Patrick Alia. On June 9,2000, Harvey 

Jester became Treasurer and continues to serve in that capacity. 

NPC maintained depositories in Washington, D.C. To handle its financial 

activity, NPC utilized four bank accounts. From these accounts the campaign made 

qjproximately 1,550 disbursements. In addition, NPC received contributions totaling 

$2,424,433 fiom approximately 26,900 contributors. NPC also received a loan of 

$500,000, offsets to expenditures of $64,229, and interest and odier receipts of $10,082^. 

In addition to the above, the Candidate was determined eligible to receive 

matching funds on June 30,2000. NPC made four matching fund requests totaling 

$888,763 and received $723,308 from die United States Treasury. This amount 

represents 4.28% ofthe $16,890,000 maximum entitlement that any candidate could 

receive. For matching fund purposes, the Commission determined that Mr. Nader's 

candidacy ended on August 17,2000, the last day of the matching payment period. On 

October 2,2000, NPC received its final matching fund payment to defray expenses and to 

help defray the cost of winding down the campaign. 

D. AUDIT SCOPE AND PROCEDURES 

In addition to a review of the expenditures made by NPC to determine if 

they were qualified or non-qualified campaign expenses, the audit covered the following 

general categories: 

1. the receipt of contributions or loans in excess of the statutory 

linutations; 

2. the receipt of contributions from prohibited sources, such as those 

fix>m coiporations or labor organizations; 

3. proper disclosure of contributions from individuals, political 

committees and other entities, to include the itemization of 

contributions when required, as well as the completeness and accuracy 

of the information disclosed; 

4. proper disclosure of disbursements including the itemization of 

disbursements when required, as well as, the completeness and 

accuracy of die information disclosed; 

5. proper disclosure of campaign debts and obligations; 

6. the accuracy of total reported receipts, disbursements and cash 

balances as compared to campaign bank records (see Finding II.); 

' See Finding II - Misstatement of Financial Activity 

Page 4 of 25 
7. adequate recordkeeping for campaign transactions; 

8. accuracy of the Statement of Net Outstanding Campaign Obligations 

filed, to disclose its financial condition and to establish continuing 

matching fund entitlement; 

9. compliance with spending limitations; and, 

10. other audit procedures that were deemed necessary in the situation. 

As part of fhe Conunission's standard audit process, an inventory of 

campaign records was conducted prior to the audit fieldwork. This inventory was 

conducted to determine if NPC's records were materially complete and in an auditable 

state. Based on our review of records presented, fieldwork began immediately. 

Unless specifically discussed below, no material non-compliance was 

detected. It should be noted that the Commission-may pursue further any of the matters 

discussed in the audit rq>ort in an enforcement action. 

IL AUDIT FINDING AND RECOMMENDATION - NON-REPAYMENT 

MATTER 

MISSTATEMENT OF FINANCIAL ACTIVITY 

Sections 434(b)(1), (2) and (4) of Title 2 ofthe United Sutes Code state, 

in part, that a political conimittee shall disclose the amount of cash on hand at the 

beginning of die reporting period and the total amount of all receipts and all 

disbursements for die rq)orting period and the calendar year. 

Section 434(b)(5)(A) of Title 2 ofthe United States Code states, in part, 

that each repoit under this section shall disclose the name and address of each person to 

whom an expenditure in an aggregate amount or value in excess of $200 within the 

calendar year is made by the reporting committee to meet a candidate or committee 

operating expense, together with the date, amount, and puipose of such operating 

expenditure. 

Section 104.18(d) of Title 11 ofthe Code of Federal Regulations states, in 

part, if a committee files an amendment to a report that was filed electronically, it shall 

also submit the amendment in an electronic format. The committee shall submit a 

complete version of the report as amended, rather than just those portions of the report 

that are being amended. 

The Audit staff compared NPC's reported figures to its bank records and 

found that for calendar year 2000, NPC materially misstated its receipts, disbursements, 

and ending cash-on-hand. 

Page 5 of 25 
NPC's reported receipts of $3,691,792 were understated by a net amount 

of $30,259. The misstatement resulted fiom NPC's failure to report $55,332 in receipts 

fix>m the Nader 2000 General Committee (die General Committee). In addition, NPC had 

miscellaneous repoiting errors in a net amount of ($25,073). The correct amount of 

reportable receipts was $3,722,051. 

NPC's reported disbursements of $3,368,307 were understated by a net 

amount of $367,684. NPC was not aware diat the General Committee's payroll for the 

period August throug(h December 2000 was erroneously paid by the payroll processor, 

from NPC's account. Consequently, disbursements totaling $495,888 that should have 

been reported by NPC were reported instead by the General Committee. In addition, 

NPC reported some disbursements twice ($93,648) and misreported miscellaneous items 

in a net amount of ($34,557). The correct amount of reportable disbursements was 

$3,735,990. 

The misstatements in reported receipts and disbursements, caused cashon-hand at December 31,2000 to be overstated by $337,424. 

At the exit conference, the Audit staff provided NPC with documentation 

explaining the misstatements. The Audit staff also provided a schedule of the payroll 

disbursements that were required to be itemized on Schedule B-P (Itemized 

Disbursements). NPC representatives agreed to file amended reports. 

In the Preliminary Audit Report, the Audit staff recommended that NPC 

file amended reports for calendar year 2000 to correct the misstatements and itemize, on 

Schedule B-P, die $495,888 in payroll disbursements discussed above. 

NPC filed the necessaiy amendments. 

IIL AUDIT FINDING AND RECOMMENDATION — AMOUNT DUE TO 

THE U.S. TREASURY 

A. DETERMINATION OF NET OUTSTANDING CAMPAIGN OBLIGATIONS 

Section 9034.5(a) of Title 11 ofthe Code of Federal Regulations requires 

that widiin 15 calendar days after the candidate's date of ineligibility (DOI), the 

candidate shall submit a statement of net outstanding campaign obligations (NOCO)^ 

which reflects the total of all outstanding obligations for qualified campaign expenses 

plus estimated necessary wmding down costs. 

^ The NOCO statement indicates whether, on the date of ineligibility, a committee has a surplus of funds 

(and therefore has to make a repayment to the U.S. Treasury) or has a net outstanding debt (and nay be 

eligible for additional matching funds). The NOCO statement also determines whether the committee 

can keep the primary matching funds it received after the candidate's date of ineligibility or whether it 

must retum some of those funds. 

Page 6 of 25 
Section 9034.1(b) of Title 11 of die Code of Federal Regulations states, in 

part, that if on the date of ineligibility a candidate has net outstanding campaign 

obligations as defined under 11 CFR 9034.5, that candidate may continue to receive 

matching payments provided that on the date of payment there are remaining net 

outstanding campaign obligations. 

In addition. Section 9034.4(b)(3) of die Title 11 of die Code of Federal 

Regulations states that any expenses incurred after a candidate's date of ineligibitity, as 

determined under 11 CFR 9033.5, are not qualified campaign expenses except to the 

extent pennitted under 11 CFR 9034.4(a)(3). The section states, in part, that any 

expenses incuned 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. 

The NOCO statement prepared by the Audit staff and an analysis of cash 

received subsequent to the statement date indicated that NPC had a deficit (net 

outstanding debt). Therefore the Audit staff concluded that the Mr. Nader had not 

received matching funds in excess of the amount to which he was entitled and no 

repayment to the United States Treasury is required. 

Mr. Nader's date of ineligibility was August 17,2000^. However, he 

continued to campaign as a candidate for the general election. The Audit staff reviewed 

NPC's financial activity through June 30,2002 and analyzed winding down costs. In 

determining NPC's financial position at DOI, die Audit staff only included winding down 

costs incurred after December 7,2000, the end of the expenditiue report period described 

in 11 CFR §9002.12 and diese were allocated between NPC and the General Committee.^ 

The audited Net Outstandmg Campaign Obligations statement appears below: 

* The Commission determined that Ralph Nader's date of ineligibility was the last day ofthe last national 

convention held by a major party (in tliis case, the Democratic Party) in tfae calendar year. 1ICFR 

§§9032.6 and 9033.S. 

' In a stateinent provided to the Audit staff subsequent to the Exit Conference, NPC recommended that 

certain winding down costs be allocated 70% to NPC and 30% to the General Committee. The Audit staff 

agreed that this ratio was reasonable. 

Page 7 of 25 
STATEMENT OF NET OUTSTANDING CAMPAIQN OBLIGATIONS (NOCO) 

Asof August 17,2000 

As determined at June 30,2002 

ASSETS 

Cash on Hand 

Cash in Bank 

Accounts Receivable 

Due From CSeneral Committee 

Capital Assets (60% of cost) 

Totai Assets 

OBUGATIONS 

1.156 

155,293 

110,249 

180,852 

19,536 

467,086 

Loan Payable 

Bank Interest due on Loan 

Accounts Payable for Qualifled Campaign Expenses 

Winding Down Expenses (12/8/00 - 6/30/02) 

Estimated Winding Down Costs Post 6/30/02 

Due To General Committee 

Excess Transfer of Holding Account Balance to General Committee 

Amount Due US Treasury - Stale Dated Checks 

Total Obligations 

Net Outstanding Campaign Obligations (Deficit) 

FOOTNOTES TO NOCO 

(a) This amount represents 70% of identified winding down costs: 30% was 

attributed to the general campaign. This amount does not include winding 

down costs of $54,753 Incurred between 8/18/00 and 12/7/00, the end of 

the expenditure report period (11 CFR §9002.12). 

(b) The estimated winding down costs will be monitored throughout the 

calendar year 2002. Any differences between the actual and estimated 

costs will be adjusted on the NOCO accordingly. 

(c) The Holding Account ceased to exist for primary election purposes 

on 7/31/00. Beginning 8/1/00 the General Committee used the 

account which had an existing balance of $96,038. To compensate 

for this, the General Committee reimbursed NPC $112.527. 

The excess anmunt reimbursed, $16,489, is payable to the General 

Committee. 

500,000 

5,960 

139.973 

365,410(a) 

78,924(b) 

75,025 

16,489(c) 

11,398 

1,193.180 

(726.094) 

Page 8 of 25 
NOCO (Deficit) as of 8/17/00 ($726,094) 

Net Private Contributions 8/18/00 to 9/1/00 90,868 

Matching Funds Received on 9/1/00 385.523 

Remainmg Net Outstanding Campaign Obligations at 9/1/00 ($249,703) 

Net Private Contributions 9/2/00 to 10/2/00 106,999 

Matching Funds Received on 10/2/00 59.157 

Remaining Net Outstanding Campaign Obligations ($83,547) 

(Deficit) 

The audited NOCO statement as well as the calculation of remaining 

entitlement was presented to NPC representatives at the exit conference. Subsequently, 

NPC provided docimientation that clarified certain components of the statement and to 

dispute the inclusion and/or exclusion of other components. 

The above NOCO statement and calculation of remaining entitlement have 

been updated based on a review of NPC's response to the preliminary audit report as well 

as a review of additional financial records, as discussed below. 

Accounts Receivable 

The value of accounts receivable has been reduced by $16,105. NPC 

presented documentation showing that the Audit staff double counted a refund received 

fiom the Verizon Company. 

Bank Interest Due on Loan 

NPC's response stated that the total interest paid on the loan to 

Amalgamated Bank was $7,373. However, according to the records obtained by NPC for 

the Audit staff fix>m Amalgamated Bank, die interest rate has been adjusted twice, 

decreasing the total interest due by $1,413. Thus, the actual interest payment was $5,960. 

Therefore, the amount of loan interest due as presented on the NOCO statement, remains 

unchanged. 

Accounts Pavable for Qualified Camtiaign Expenses 

NPC stated that the NOCO statement presented in the preliminary audit 

report significantiy understated NPC's accounts payable at August 17,2000. NPC 

disputed 20 expenses, totaling $27,064, it says were incurred prior to the Candidate's date 

of ineligibility and should have been included in accounts payable. Three of the 

expenses, totaling $15,630, were payments for legal representation; 16 payments totaling 

$3,799 represented reimbursed expenses to NPC's contractors; and one payment of 

$7,635 represented the purchase of office supplies. 

The Audit staffs review of relevant disbursement records showed that the 

legal services were rendered and the corresponding payments for those services occurred 

Page 9 of 25 
after DOI. Similarly, NPC did not demonstrate diat die payments to contractors in 

Alabama totalmg $3,799 were for expenses incurred prior to the Candidate's DOI. 

Furdier, without a vendor invoice indicating a date Of incurrence prior to DOI, the 

October 2000 payment of $7,635 for the purchase of office supplies is not a payable. 

These expenses have been treated as general election expenses consistent 

with other expenses inciured between DOI and the end ofthe expenditure report period. 

Therefore, the Audit staff made ho adjustment to accoimts payable regaiding these 

disbursements. 

Windmg Down Expenses - August 18.2000 duoueh December 7.2000 

In the preliminary audit report, $54,753 in winding down expenses 

between August 18, 2000 and December 7, 2000, were excluded fh)m the calculation of 

net outstanding campaign obligations pursuant to 11 CFR §9034.4(e)(3) and 

11 CFR §9002.12. 

In its response to the preliminary audit report, NPC disagreed with this 

exclusion stating that the cited regulations do not support the Audit stafTs conclusion. 

Further, NPC asserted that a note in the Financial Control and Compliance Manual for 

Presidential Primaiy Candidates Receivmg Public Financing^ that states that salaries and 

overhead expenses between the date of noniination and the end ofthe expenditure period 

(December 7,2000) are general election expenses that may not be charged to exempt 

compliance for the purposes of winding down the primary campaign, is limited to 

federally fimded candidates who go on to receive federal funds fbr the general election. 

Mr. Nader did not receive federal funds for the general election. 

The Audit staffs treatment of winding down expenses for this period is 

based on the premise that candidates who obtain primaiy election public funding can only 

use those funds for their primary campaigns and to pay the costs associated with winding 

down the primary campaigns. (11 CFR §9034.4(a)). Candidates, like Mr. Nader, who 

continue on to the general election, are not winding down their campaigns prior to the 

general election but are incurring costs associated with campaigning for the general 

election. These costs are not qualified campaign expenses for the primary campaign 

(llCFR§9034.4(b)(3)). 

Winding Down Exoenses - December 8.2000 through June 30.2002 

The preliminary audit report identified $287,956 in winding down 

expenses for the period December 8,2000 through January 25,2002^. NPC disagreed 

with the 70/30% allocation of winding down costs between the primary and general 

committees. They maintain that the entire amount should be attributed to NPC. 

* April 2000, p. S4, note 19. 

' Tliis is actual winding down expenses through January 25,2002, the day of the Exit Conference. 

Page 10 of 25 
Usmg disclosure reports filed as of June 30,2002 the Audit st^ updated 

the NOCO statement to reflect actual winding down expenses through that date. 

Consequently, the value of the expenses paid during the period December 8,2000 

through June 30,2002 is $365,410. This amount is die sum of expenses for three periods 

during which wmding down expenses were calculated as follows: 

1. December 8,2000-May 31,2001-The total amount of 

winding down expenses incuned during this period was 

$194,759. NPC's portion, $136,331, represents 70% of diis 

amount. The remaining $58,428, or 30%, was attributed to die 

General Committee. Based on the relative financial activity of 

both committees through May 2001, the Audit staff determined 

that the 70/30 cost allocation, which was initially proposed by 

NPC, was reasonable. 

2. June 1,2001 - December 31.2001 - $150,155 (100%) of die 

winding down expenses was attributed to NPC by the Audit 

staff because the General Committee's winding down process 

had been completed. 

3. January 1,2002-June 30,2002^. $78,924 (100%) of die 

winding down expenses was attributed to NPC by the Audit 

staff because the General Committee's winding down process 

had been completed. 

Private Contributions Deposited After the Date of Ineliaibilitv 

According to the preliminary audit report, private contributions totaling 

$294,611 were deposited into NPC's account between August 18,2000 and October 2, 

2000. These contribution checks included many that were made payable to "Nader," 

^'Nader for President," "Nader 2000" and other names that did not indicate whether they 

were intended for NPC or the General Committee. These ambiguous checks were 

deposited into NPC's checking account alter DOI, although many were dated prior to 

DOI. NPC claims that these contributions were intended for the general election and that 

they were erroneously deposited in NPC's account. To document that these contributions 

were intended for the General Conimittee, NPC in its response to the preliminary audit 

report, provided copies of 1,855 checks totaling $122,910^. In some cases, solicitation 

devices accompanied the contribution checks. Some of the devices appeared to be 

solicitations for contributions to the general campaign; other devices did not identify the 

intended recipient. 

' NPC's disclosure reports were reviewed to determine the actual value of the winding down expenses for 

die period. 

' Twenty-suc contribution checks totaling SI,468 were excluded from the review because they were either 

illegible or duplicates. 

Page 11 Of 25 
According to 11 CFR §110.1(b)(2)(ii) and (b)(4Xi) and (ii), in die case of 

a contribution not designated in writing by the contributor for a particular election, the 

contribution is deemed designated for the next election for that Federal office after the 

contribution is made. Contributions are considered to be designated in writing if they are 

made by a negotiable uistrument that clearly indicates the election for which they are 

intended or diey are accompanied by a writing signed by the contributor that clearly 

indicates the election. In the case of these ambiguous diecks, the copies of solicitation 

devices provided with some checks did not contain the signatures of the contributor. For 

such items, the Audit staff considered checks diat were dated prior to August 18,2000 as 

contributions for NPC and any dated after August 17,2000 as contributions for the 

General Committee. 

As a result of our review, the Audit staff determined that 1,550 

contributions totaling $96,744 intended for the General Committee were erroneously 

deposited to NPC's account between August 18 and October 2,2000'°. Accordingly, 

these contributions were not included in the Audit staffs calculation of entitiement 

remammg after DOI. 

B. STALE-DATED CHECKS 

Section 9038.6 of Title 11 ofthe Code of Federal Regulations states diat if 

the committee has checks outstanding to creditors or contributors that have not been 

cashed, the committee shall notify the Commission. The committee shall inform the 

Commission of its efforts to locate the payees, if such efforts have been necessaiy, and its 

efforts to encourage the payees to cash the outstanding checks. The committee shall also 

submh a check for the total amount of such outstanding checks, payable to the United 

States Treasury. 

The Audit staff identified 38 stale-dated checks totaling $18,346 issued by 

NPC fiom its Mam Primaiy Account. The checks were dated between May 24,2000 and 

January 17,2001 and had not been cashed by the recipients as of May 31,2001. 

Eighteen of the stale-dated checks were issued to refund excessive contributions. 

At the exit conference, the Audit staff provided NPC representatives with 

a schedule ofthe stale-dated checks and advised them that they might contact the 

contributors or vendors and request that they cash the checks. 

In the preliminary audit report, the Audit staff recommended that the NPC 

provide evidence that: 

• The checks were not outstanding, by providing copies of the front and 

back of the negotiated checks; or 

• The outstanding checks were void by providing statements from the 

vendors indicating that they have been paid in full or an account 

reconciliation showing that no obligation exists. 

Eighty contributions totaling $4,737 were erroneously deposited to NPC's account between 8/18/00 and 

9/1/00; 1,470 contributions totaling $92,007 were deposited in error between 9/2/00 and 10/2/00. 

Page 12 of 25 
Absent such evidence, the Audit staff would recommend that the Commission determine 

diat NPC had to pay the United States Treasury $ 18,346 to cover die total of stale-dated 

checks. 

NPC provided documentation that it voided and subsequently re-issued 14 

checks totaling $6,948. NPC further demonstrated diat as of May 31,2002 die recipients 

had cashed all 14 reissued checks. Twenty-four stale-dated checks totaling $11,398 

($18,346 - $6,948) remained. 

Recommendation 

The Audit staff recommends that the Commission detennine that NPC pay 

the United States Treasiuy $11,398 to cover die total of the outstanding stale-dated 

checks. 

Page 13 of 25 
Page 14 of 25 
RECEIVED 

FEDERAL ELECTlC:: 

COHHir-SICIN 

AUDIT DIViSION 

FEDERAL ELECTION COMMISSION 

WASHINGTON. D C 204b t 2032 NOV -8 P 3: Ob 

Novenoer 8. 2002 

MEMORANDUM 

TO: Robert J.Cosu 

Deputy Staff Director 

THROUGH: James A. Pehrieon \ ^ 

StaffDirector 

FROM: Lawrence H. Norton" 

General Counsel ^ 

Gregory R. Bake 

Acting Associate General Counsel 

Peter G. Blumberg 

Acting Assistant General Counsel 

Delanie DeWitt Pamter fj,.:(^^'^ 

Attomey fcfl'w J 

SUBJECT: Proposed Audit Rqport on Nader 2000 Primary Committee, hic. (LR.^ #588) 

The Office of General Counsel has reviewed the proposed .^udii Report on Nader 2000 

Primaiy Coimnittee, Inc. (the **Commitiee*') submnied lo this Office on .August 23.2002. This 

memorandum summarizes our comments on the proposed repor. Our comments focus on the 

issue ofthe Committee's net outstanding campaign obiiszaiions. snscn'ically the calculation of 

winding down costs and accounts payable. Genera!];, w ? concur wuh any findings not 

specifically addressed in these comments. If you na\ c 2r.> ouesuons. please contact Delanie 

DeWin Painter, the anomey assigned to this audi: 

1. NOCO-'WINDING DOWN COSTS ANP ACrni NTS PA^ ABLE fill. A.) 

A. WINDING DOWN COSTS 

The proposed Repon raises the novel issue o:' nov^ ic- cuiciiiaie ihs winding down costs 

for a candidate who ran in both the primary and ycr.srj. viccllon^ bu: oni;. received public fund: 

for the primar\' election. This Office concurs i:r. n JC:: DW is-or. S e.\ciusion o:' purponed 

* The Office of General Counsel reconunends iha: ih; Convrussior. :onsids; this documsni in open srssion 

since the repon does not include matters exempt from pubii: cis:io«u:; Si\ '.'. C.F.R <2A 

Page 15 of 25 
Memorandum to Joseph F. Stoltz 

Proposed Audit Report 

Nader 2000 Primaiy Committee, bc. (LRA #588) 

Page 2 

primary wind down costs between the candidate's date of ineligibility and the end of the general 

election expenditure report period.^ We agree with your conclusion that these expenses should 

be treated as general election expenses rather than primary winding down costs. Several 

provisions ofthe regulations and the regulatory history support allocating expenses incurred 

between the date of nomination and the end ofthe expenditure report period as general election 

expenses. As discussed more fully below, this approach is consistent with the regulations 

governing the attribution of expenses between the primary and general election campaigns, the 

regulations govemmg winding down costs and the regulations defining qualified campaign 

expenses. Moreover, this approach treats the winding down expenses of this candidate in a 

manner consistent with those of other general election candidates who received matching funds 

during the primary period. 

Ralph Nader qualified for matching funds for his primary election campaign and became 

ineligible on August 17,2000. He also ran in the general election but did not qualify for public 

funds. The Committee contended that certain expenses between the candidate's date of 

ineUgibility and the end ofthe general expenditure report period. December 7,2000, should be 

allocated 70% to the primary election as winding down costs and 30% to the general election as 

operating expenditures.^ In the Preliminary Audit Report, the Audit Division considered none of 

the expenses incurred between August 18,2000 and December 7,2000 to be primary winding 

down expenses. The Committee argued in response that there is no legal authority for this 

conclusion and that it continued to incur primary-related winding down expenses during this 

period. The Audit stafif was not convinced by these arguments and the proposed Report excludes 

$35,324 in costs incurred during this period from the calculation ofthe Committee's primary 

winding down costs.^ 

Essentially, the issue here is how to allocate these expenses between the candidate's 

primary and general election campaigns. The regulations governing the attribution of 

expenditures between the primary and general expenditure limitations apply to "candidates who 

receive public funding in either the primary or general election, or both.*' ^ 11 C.F.R. 

' For purposes of this discussion, we are assuming that all ofthe expenses at issue would have been qualified 

primary winding down costs if die candidate had not run in the general election. 

' For general election candidates who received public funds, the expenditure report period began on the date 

they received their parties* noniination and ended on December 7.2000. 30 days after the general election. See 

n C.F.R. § 9002.12. 

* The Audit Division also attributed 70% of expenses from December 8.2000 through May 31.2001 as 

primary winding down expenses and 30% as general windini; dov\-n expenses based on the financial activity of both 

committees. Because the general committee's winding do^^Ti process u-as completed by May 31. 2001 while the 

audit ofthe Comminee continued, you attributed 100% of expenses from June 1,2001 through June 30,2002 to the 

Committee as primary election wind down costs. We agree that these atiribuuons are reasonable. 

' The Commission revised the bright line rules in 1999 to clarify that section 9034.4(e) "applies to . 

Presidential campaign committees that accept federal funds for either election." 64 Fed. Reg. 49,339. The 

Conunission explained that not all candidates receive public funds for both elections and that "candidates accepting 

federal financing for only tfae general election will also need guidance in attributing their expenditures" between the 

Page 16 Of 25 
Memorandum to Joseph F. Stoltz 

Proposed Audit Report 

Nader 2000 Primaiy Committee, he. (LRA #588) 

Page 3 

§ 9034.4(e). Since Ralph Nader received public funds for the primary election (but not for the 

general election) these roles apply to him. The general mle is that expenditures, other than 

ceitain listed categories of expenses, "for goods and services that are used for the primary 

election campaign** are attributed to the primary expenditure limitation and expenditures "for 

goods or services that are used for the general election campaign** are attributed to the general 

election expenditure limitation. 11 C.F.R. § 9034.4(e)(1). The regulation provides specific 

*'bright Une" expenditure attribution mles that generally focus on the timing of the activity for 

polling, state or national campaign offices, campaign materials, media production costs, 

campaign communications and travel costs. 11 CF.R. § 9034.4(e)(2)-(7). Thus, section 

9034.4(e) supports attributing all expenses incurred during Nader's general election campaign 

(between his date of ineligibility and the end of the expenditiire report period) as general election 

expenses. 

The regulations governing winding down costs also support treating all expenses ofa 

general election candidate between his date of ineligibility and the end ofthe expenditure report 

period as general election expenditures rather than primar>' winding down costs. The bright line 

attribution mle for state and national offices provides that "overhead and payroll costs associated 

with winding down the campaign and compliance activities shall be govemed by** 11 CF.R. 

§ 9034.4(aK3). 11 CF.R. § 9034.4(e)(3). Winding down costs are "costs associated widi the 

termination of poUtical activity, such as the costs of complying with the post election 

requirements of the Act and other necessary administrative costs associated with winding down 

the campaign, including ofiice space rental, staff salaries, and office supplies."^ 11 CF.R. 

§ 9034.4(a)(3)(i). Thus, the regulatory definition of winding down costs supports iexcluding 

purported primary winding down costs during the general election period because a candidate 

who is actively campaigning for the general election is not generally teiminating political 

activity and winding down his campaign.^ See id. Since Nader's presidential campaign did not 

teiminate until after the general election, expenditures incurred during his general election 

campaign should not be treated as winding down costs. 

Several other proviisions of the regulations also support attributing expenses of a general 

election candidate during the expenditure report period as general election expenses. Candidates 

primary and general elections. Id. Thus, the Commission considered the possibility that candidates would only 

receive public funds for the general election, but did noi appear to focus on the reverse situation. In 1999, it 

appeared likely that at least one candidate might forgo priinar>- matching funds but accept general election public 

funds. Although tfae Coinmission did not focus on the reverse situation, there is no indication it intended different 

rules to apply to candidates who run in both elections but only receive primar\' matching funds. 

^ Winding down costs are quaUfied campaign expenses and a candidate may receive and use matching fiinds 

for them after his date of ineligibility. Id. 

' Some administrative costs paid by a general election candidate may be related io terminating the primary 

cainpaign; however, identifying which costs incurred during the general election campaign are primary winding 

down costs would consume the time and resources of both the Commission and audited comminees. Such an indepth review of winding down costs would be conirar>' to the Commission's intent in establishing the ''bright line" 

rules for allocating expenses between primary and general canqiaigns. See infra at 5, note 10. 

Page 17 of 25 
Memorandum to Joseph F. Stoltz 

Proposed Audit Report 

Nader 2000 Primaiy Committee, Inc. (LRA #588) 

Page 4 

who receive public fimds for their primary election campaigns can use those funds only for their 

primary campaigns. See 11 C.F.R. §§ 9032.9(a)(1), 9034.4(a), (b) and (e). The regulations 

define qualified campaign expenses for a primary candidate as, inter alia, expenses incurred 

"fix)m the date the individual becomes a candidate through the last day of the candidate's 

eligibility" and made "in connection with his or her campaign for nomination.*' 11 C.F.R. 

§ 9032.9(a)(1). Non-qualified primary campaign expenses include: expenses incurred before the 

candidate's date of ineligibility for goods or servrices to be used after the date of ineligibility; 

expenses incuired for property, services or facilities used to benefit the candidate's general 

election campaign; and expenses incurred after the candidate's date of ineligibility other than 

winding down costs. 11 C.F.R. § 9034.4(b). These regulations indicate that expenses of a 

general election campaign generally would be non-qualified primary campaign expenses because 

they are not "in connection with" tiiie campaign for nomination; they are incurred and used after 

the date of ineligibility, and they benefit the candidate's general election campaign. See 

11 C.F.R. §§ 9032.9(a)(1), 11 CF.R. 9034.4(b). Thus, excluding purported primary winding 

down costs while the candidate is ronning for the general election would prevent the possible use 

of primary matching funds for non-qualified expenses that may benefit the general election 

campaign. 

The regulatory history also supports attributing expenses during the expenditure report 

period as general election expenses rather than primary wind down expenses for candidates who 

ron in both the primary and general elections. The attribution of expenses between the primary 

and general campaigns of pubUcly-financed candidates who ran in both elections raised difficult 

and contentious issues in previous election cycles. The Commission addressed these issues in a 

1995 mlemaking that created the bright line roles discussed above, at 11 CF.R. § 9034.4(e), for 

the attribution of certain expenditures that may benefit both the primary and the general election 

campaign, including costs of state or national offices. A 1999 revision to the bright line roles 

considered whether primary wind down costs incurred after the candidate's nomination should 

be attributed to the general election. See Explanation and Justification, "Public Financing of 

Presidential Primary and General Election Candidates." 64 Fed. Reg. 49,355,49,358-59 

(September 13,1999). The Commission sought comments on a draft revised role providing 'Ihat 

for candidates who win their parties' nominations, no salary and overhead expenses may be 

treated as winding down costs until after the end ofthe expenditure report period." 64 Fed. Reg. 

49,358. 

Instead of the approach outlined in the draft roles, the final roles approved by the 

Commission revised section 9034.4(a)(3)(iii), which allows committees to treat all salary, 

overhead and computer costs after a certain date as compliance costs exempt firom the 

expenditure limitations.' Revised section 9034.4(a)(3)(iii) provides that "a candidate who does 

not receive public fimding for the general election" may treat 100% of salary, overhead and 

computer expenses incurred after the candidate's date of ineligibility as exempt legal and 

accounting compliance expenses for purposes of the expenditure limitations beginning with the 

' Section 9034.4(aK3Kiii) is a sub-section ofthe rules governing winding down costs at 9034.4(aK3). 

Salary, overhead and computer expenses generally constitute a large portion of winding down costs. 

Page 18 of 25 
Memorandum to Joseph F. Stoltz 

Proposed Audit Report 

Nader 2000 Primary Comimttee, Inc. (LRA #588) 

Page 5 

first ftiU reporting period after the date of ineligibility. 11 C.F.R. § 9034.4(a)(3)(iii). It further 

states, "candidates who receive public funding for the general election must wait until the end of 

the expenditure report period" (i.e., 30 days after the general election) before they may treat 

100% of salary, overhead and computer expenses as exempt compliance costs for the purposes of 

the expenditure limitations. Id. The Commission noted that the issue needed to be clarified and 

observed that "[djuring the general election campaign, there.are significant distinctions between 

the winding down activities of candidates who win their parties' nominations and those who do 

hot, particularly with regard to legal and accounting compliance expenses." 64 Fed. Reg. 

49,359. The Commission stated that the revised roles provide that "a publicly funded primary 

candidate who does not run in the general election" may treat all salary and overhead expenses as 

compUance after the date of ineligibility, but "federally financed primary candidates who 

continue on to the general election... must wait until after the end of the expenditure report . 

period before they may begin treating all salary and overhead expenses as compliance expenses." 

Id. Although this revision did not explicitly preclude party nominees from treating salary and 

overhead expenses as winding down costs before the end of the expenditure report period, the 

regulation is consistent with attributing salary and overhead expenses of general election 

candidates as general election expenses rather than primar>' wind down expenses during the 

expenditure report period. The compliance exemption would not apply to salary and overhead 

costs before the end of the expenditure repon period if those costs are considered general 

election expenses that would not count against the primary expenditure limitation. 

Moreover, one ofthe motivating factors for promulgating the bright line roles for 

attributing primary and general expenses was to avoid consuming time and resources to delineate 

between primaiy and general expenses in particular cases.'° The Commission recognized that 

' This Office recognizes that the language of 11 C.F.R. § 9034.4(a)(3)(iii). and in particular die first 

sentence, is confusing. We believe that the most logical interpretation of9034.4(a)(3Xiii) is that primary candidates 

who receive primary matching fimds, but who do not run in the general election may exempt salary, overhead and 

coix^uter costs (wfaich are types of winding down costs) as compliance expenses after their date of ineligibility. 

However, candidates like Nader who receive primary matching funds but who go on to run in the general election 

without public funding must wait until the end ofthe expenditure report period to exempt these categories of costs as 

cpnq>liance expenses. This reading is based on the relatively clear inieni expressed in the regulatory history of this 

section. Under our reading, the language of this section does not appear to contemplate the possibility of a publicly 

funded primary candidate who runs in the general election without public funds. The Committee correctly notes that 

the 2000 Financial Control and Compliance Manual Jor Presidential Candidates Receiving Public Funding at page 

54, footnote 19. refers to candidates "who go on to receive public funds in the general election" and does not discuss 

candidates who run in the general election but do noi receive public funds. Altematively. section 9034.4(a)(3)(iii) 

could be read to allow primary candidates like Nader who run in the general election to exempt certain costs as 

compliance expenses after their date of ineligibility so long as they do not receive general election public funds. 

However, this alternative interpretation seems contrary to the regulator)' scheme created by section 9034.4 and the 

regulatory history. 

A "major factor" the Cominission considered in the 1995 rulemaking was "the desire to complete the audits 

more quickly and using fewer agency resources" by avoiding the "extremely time and labor intensive" examination 

of "thousands of individual expenditures" where "both the liming and the purpose of each expenditure is at issue." 

Explanation and Justification. "PubUc Financing of Presidential Primary and General Election Candidates," 60 Fed. 

Reg. 31.854.31,866 (June 16,1995). 

Page 19 of 25 
Memorandum to Josq>h F. Stoltz 

Proposed Audit Report 

Nader 2000 Primaiy Committee, he. (LRA #588) 

Page 6 

the bright line roles might not always "accurately reflect the relative impact of particular 

expenditures" bat considered that the "differences should balance themselves out over the course 

of a lengthy campaign.*' 60 Fed. Reg. 31,867. Under the bright line roles, candidates like Nader 

who receive primaiy matching funds may use those public funds prior to their date of 

ineligibiUty for some expenses that may benefit their general election effort; however, those 

expenses would be balanced under the roles by expenses that may have a primary winding down 

component but are considered general election expenses. When the Commission sought 

comments on revising the regulations conceming winding down costs, it observed that this 

"clarification would recognize that under the ^bright line roles,* the costs incuired for winding 

down the primary campaign during the general election period will be offset by pre-convention 

general election expenses." Notice of Proposed Rulemaking. "Public Financing of Presidential 

Primaiy and General Election Candidates." 63 Fed. Reg. 69,524,69,526 (December 16,1998). 

Furtheimore, there is no indication in the regulations or regulatory history that the 

Commission intended to exempt candidates who ron in both the primary and general elections 

but receive pubUc funds only for the primary election fiom the roles applicable to other 

candidates. Indeed, the regulatory history indicates that the Commission mtended to encompass 

candidates who "contmue on to the general election." 64 Fed. Reg. 49,359. The "significant 

distinctions between the winding down activities of candidates who win their parties' 

nominations and those who do not" are the same regardless of whether those candidates receive 

pubUc fimds for the general election. Id. Moreover, the potential problem that public funds 

received for the primary campaign could be used for non-qualified expenses related to the 

general election exists whether or not the candidate receives pubUc fimds for the general 

election. Finally, Nader's winding down expenses should be treated consistently with those of 

other general election candidates who received matching funds during the primary period. It 

would be inconsistent to allow one general election candidate to ftind overhead during the 

general election campaign with primaiy matching funds while other general election candidates 

cannot do so. 

B. ACCOUNTS PAYABLE 

This Office disagrees with the adjustment of the Statement of Net Outstanding Campaign 

Obligations ("NOCO Statement") in the proposed Report to include $19,429 in expenses 

incurred and paid after the candidate*s date of ineligibility as accounts payable for "Other 

Primary Expenses." This attribution is inconsistent with the exclusion from the NOCO 

Statement of primaiy winding down costs during the same period. The Committee has not 

demonstrated that these expenses were incurred prior to the candidate's date of ineligibility. 

Therefore, we recommend that these expenses be treated as general election expenses consistent 

with other expenses incurred after the date of ineligibility. 

The Committee's assertions that these expenses were incurred prior to the date of 

ineligibility are not persuasive. Documentation provided by the Audit staff indicates that most, if 

not all, of these expenses were both incurred and paid after the date of ineligibility. Indeed, the 

Committee admits that the legal services for a lawsuit conceming Illinois ballot access were 

Page 20 of 25 
Memorandum to Joseph F. Stoltz 

Proposed Audit Report 

Nader 2000 Primaiy Committee, Inc. (LRA #588) 

Page 7 

rendered after August 25,2000 and that some work by Alabama ballot access workers may have 

occurred after the date of ineUgibility.'' Ballot access costs may be primary qualified campaign 

expenses but are also inherently related to the general election. In addition, the Committee 

contends that a payment of $7,500 to a law firm on September 11,2000 for legal expenses to 

defend a trademark infiingement suit was incurred prior tb the date of ineligibility because the 

advertisement at issue in the lawsuit aired prior to that date.'^ However, a letter from the law 

firm dated September 8,2000 states that the firm was beginning/7ro bono representation of the 

Committee in the case and that the $7,500 was an advance for out of pocket expenses and any 

work by non-volunteers. Further, the advertisement at issue in the trademark infiingement suit 

could have benefited both the candidate's primary and general election campaigns. Since these 

expenses were incurred after the candidate's date of ineligibility, they should be treated as 

general election expenses consistent with other expenses incurred between the candidate's date 

of ineligibility and the end of the general election expenditure report period. 

Therefore, we concur with the calculation of winding down costs but disagree with the 

treatment of certain expenses as primary accounts payable in the proposed Audit Report. 

Finally, we note that these issues have no repayment consequences. The candidate is in a deficit 

position imder the Audh Division's calculations and did not receive matching fiind payments in 

excess of his entitlement. 

" Although the available documentation does not clarify when the activity by the Alabama ballot access 

workers occurred, the e-mail requesting payment was dated October 11.2000 and the payments were made on 

October 23.2000. two months after the date of ineligibility. 

The cover memorandum to the proposed Repon refers to an Advisory Opinion ("AO") as support for 

treating general election ballot access expenses as primary qualified campaign expenses and accounts payable. In 

AO 1984-25 and AO 1995-45. the Commission concluded thai disbursements during the matching payment period 

by a minor party primary candidate to obtain ballot access for the general election were qualified campaign 

expenses. Most ofthe ballot access expenses here, however, were incurred after the candidate's date of ineligibility 

and the end of the matching payment period. 

Press accounts indicate that the advertisement first aired in August 2000 and that Mastercard filed suit 

agamst the Comminee on August 17.2000. the date of ineligibility. One anicle stated that Mastercard sought a 

preliminary injunction "to get the ad off the air" in October 2000. See Valerie Sieminski, First Amendment: 

Priceless Mastercard is Still Trying to Get Nader Ad Off the Air NAT'L L. J. October 2,2000 at B12. Thus, it is not 

clear whether the Committee planned to air the advenisement after the date of ineligibility. 

Page 21 of 25 
Page 22 of 25 
FEDERAL ELECTION COMMISSION 

WASHINGTON. DC 2046< 

November 15,2002 

Mr. Harvey Jester, Treasiner 

Nader 2000 Primary Committee, Inc. 

2841 Woodlawn 

Falls Church, VA 22042 

Dear Mr. Jester: 

Attached please find the Report of the Audit Division on Nader 2000 Primary 

Committee, Inc. The Commission approved the report on November 14,2002. As noted 

in the report, the Coinmission may pursue any ofthe matters discussed in an enforcement 

action. 

The Commission approved report will be placed on the public record on November 

25,2002. Should you have any questions regarding the public release of the report, please 

contact the Commission's Press Office at (202) 694-1220. 

Any questions you have related to mauers covered during the audit or in the report 

should be directed to Zuzana Pairish or Wanda Thomas of the Audit Division at (202) 694-

1200 or toll tee at (800) 424-9530. 

Joseph F. Stoltz ' 

/ Assistant StaffDirector 

/ .\udit Division 

Attachment as stated 

cc: Theresa Amato, Assistant Treasurer 

Michael Trister, Attomey at Law 

Page 23 of 25 
Page 24 of 25 
NADER 2000 PRIMARY COMMITTEE, INC 

CHRONOLOGY 

Audit Fieldwork 

Exit Conference 

Preluninaiy Audit Report to 

the Committee 

Response to the 

Preliminary Audit Report 

Final Audit Report Approved 

08/06/01 -12/05/01 

01/25/02 

04/03/02 

06/04/02 

11/14/02 

Page 25 of 25