FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 2046.3 

June 13/ 2011 

MEMORANDUM 

TO: Joseph F. Stoltz 

Assistant StaffDirector y 

FROM: Christopher Hughey 

Acting General Counsel T 

Lawrence L. Calvert, h.^^'^^'j 

Associate General Coiu^ky 

Lorenzo Holloway 

Assistant General Counsel 

For Public Finance and Audit Advice 

Delanie DeWitt Painter 

Attomey 

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

The Office ofthe General Counsel has reviewed the Draft Final Audit Report ("DFAR") 

on Nader for President ("Committee"). We concur with the findings in the DFAR and faave 

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

rqiayment. If you have any questions, please contact Delanie DeWitt Painter, the attomey 

assigned to tfais audit. 

The Proposed Report recommends that tfae Committee r^ay $56,165 to the United States 

Treasury for receiving fiinds in excess of the candidate's entitiement. This repayment arises 

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

Outstanding Campaign Obligations ('*NOCO Statement"). Generally, a commitiee's net 

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

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

In response to the Preliminary Audit Report ("PAR") the Ckimmittee makes three 

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

thereby increasing the amount of matching fiinds to which it was entided and, in tum, reducing 

or eliminating any amount it would be reqiured to repay the Treasury for fiinds received in 

excess of the entitlement. These arguments are: 1) winding down costs should include expenses 

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

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

Nader for President Audit Report 

LRA#7SS 

Page 2 

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

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

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

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

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

Committee's winding down expenses could increase the amount of the candidate's entitlement 

and eliminate the finding that the candidate received federal fimds in excess of his entitlement 

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

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

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

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

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

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

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

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

6. The Committee argues that the 31 day rale "operated to punish the Committee for quickly and 

ef&ciendy meeting its audit obligations," and that it incurred substantial primary windmg down 

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

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

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

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

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

general dection candidate fiom winding down primary election matters until 31 days after the 

general election. Id. at 5. It also argues that tfae rationale for establishing tfae 31 day brigiht line 

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

administrative cost, and tfaat the result is unfair and burdensome. Id. 

The Committee's arguments amount to a request that the Commission ignore the plain 

language of its own regulation. The regulation clearly states that candidates who run in die 

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

funds" for primary winding down costs and no expenses incurred **prior to 31 days after the 

general election shall be considered primary winding down costs." 11 CF.R. § 9034.11(d). This 

provision applies ^'regardless of whether die candidates receive public fimds for the general 

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

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

rale diat would allow tfae Committee to demonstrate tfaat any expenses during tfais period, even 

tfaose associated with the Commission's audit, were primary winding down costs. There is no 

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

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

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

that relate to tfaese calculation errors. 

' The DFAR states that the auditors agreed to start audit fieldwork early at the (Committee's request to allow 

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

Nader for President Audit Rqjort 

LRA #755 

Pages 

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

promulgating this regulation, the Commission acknowledged that the 31 day rale "may result in 

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

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

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

the primary committee prior to the candidate's DOl."^ Explanation and Justification for 11 

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

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

expenses based on a date radier tfaan considering each particular expense. Bright line rales 

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

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

down costs rales for bodi primary and general candidates in the 2003 ralemaking to avoid fiiture 

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

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

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

We acknowledge that as a practical matter, it is likely that die Committee incurred some 

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

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

detennined not to t^ply the regulation in this instance, the documentation provided by the 

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

othera, such as rent or utilities, which it likely would have incurred in any event. For example, 

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

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

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

was intended to prevent. Nevertheless, the Committee will have another opportunity to submit 

supporting documentation if it decides to seek administrative review of the repayment 

determination. 

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

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

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

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

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

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

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

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

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

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

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

^ The Commission explained that this mle is consistent with the Commission's bright line rules at 11 CF.R. 

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

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

Nader for President Audit Report 

LRA #755 

Page 4 

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

the statute. Tfae Commission cannot cfaange die candidate's date of ineligibility because it is 

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

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

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

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

die calendar year. 26 U.S.C § 9032(6); 11 CF.R. § 9032.6(bX2). Thus, the latest possible date 

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

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

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

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

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

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

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

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

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

matching fimds. More to the point, we understand that the amount of ballot access expenses 

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

the candidate's entidement or the repayment. The Committee argues that it spent $3,905 for 

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

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

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

The Committee's tfaird argument is diat the Commission should cfaange tfae 70/30% 

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

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

Response at 3,7-9. The (Nmittee argues diat tfae regulations allow fiexibility in determining a 

reasonable allocation and diat 11 C.F.R. § 9034.11(c) does not prohibit crediting the Ck>mmittee 

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

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

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

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

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

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

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

We recommend that the auditors raise for the Commission's consideration the possibility 

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

December 5,2008 fiom 70% to a higher amount. Unlike die Committee's odier two arguments, 

raising the primary winding down percentage would not contradict the express language ofthe 

Commission's regulations. 

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

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

Nader for President Audit Report 

LRA #755 

Page 5 

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

'\ising any reasonable allocation mediod." 11 CF.R. § 9034.11(c), see 11 CF.R. § 9004.11(c). 

An allocation method is presumptively 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 the 

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

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

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

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

committee, the committee '*will be required to demonstrate tfaat their allocation method was 

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

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

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

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

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

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

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

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

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

sliglhtly higher dian 2/3 of the total winduig down costs. The percentage could be fiirther 

increased if the Conunission concludes diat the Committee has demonstrated that the higjher 

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

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

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

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

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

promulgation of 11 C.F.R. § 9034.11(c)). Because the Committee has not demonstrated tfaat die 

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

may not be appropriate on that date. Instead, die Commission could apply a higher primary 

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

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

increases the percentage to 80% or 90%. 

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

demonstrated that a hig^her percentage allocation is reasonable. Tfae Committee has not provided 

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

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

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

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

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

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

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

percentage allocation would be reasonable.