Final Audit Report of the 

Commission on Gary Johnson 

2012, Inc 

(April 1, 2011 - November 30, 2014) 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political committee 

established by a candidate 

who receives public funds 

for the primary 

campaign.' The audit 

determines whether the 

candidate was entitled to 

all of the matching funds 

received, whether the 

campaign used the 

matching funds in 

accordance with the law, 

whether the candidate is 

entitled to additional 

matching funds, and 

whether the campaign 

otherwise complied with 

the limitations, 

prohibitions, and 

disclosure requirements 

of the election law. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign (p. 3) 

Gary Johnson 2012, Inc is the principal campaign committee 

for Gary Johnson, a candidate for the Libertarian Party 

nomination for the office of President of the United States. 

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

more information, see the chart on the Campaign 

Organization, p. 3. 

Financial Activity (p. 4) 

• Receipts 

o Contributions from Individuals 

o Matching Funds Received 

Total Receipts 

• Disbursements 

o Operating Expenditures 

o Fundraising Disbursements 

o Exempt Legal and Accounting 

Disbursements 

Total Disbursements 

$2,249,318 

510,261 

$2,759,579 

$ 2,534,497 

153,019 

28,130 

$ 2,715,646 

Commission Findings (p. 5) 

• Net Outstanding Campaign Obligations (Finding 1) 

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

• Use of General Election Contributions for Primary 

Election Expenses (Finding 3) 

• Reporting of Debts and Obligations (Finding 4) 

Additional Issue (p. 6) 

• Extension of Credit by a Commercial Vendor 

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

Commission on 

Gary Johnson 2012, Inc 

(April 1, 2011 - November 30, 2014) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Committee Structure 1 

Audit Hearing 2 

Part II. Overview of Campaign 

Campaign Organization 3 

Overview of Financial Activity 4 

Part III. Summaries 

Commission Findings 5 

Amounts Owed to the United States Treasury 7 

Part IV. Commission Findings 

Finding 1. Net Outstanding Campaign Obligations 8 

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

Finding 3. Use of General Election Contributions for Primary Election 

Expenses 20 

Finding 4. Reporting of Debts and Obligations 22 

Part V. Additional Issue 

Extension of Credit by a Commercial Vendor 26 
Parti 

Background 

Authority for Audit 

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

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

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

matching payment period, the Commission shall conduct a thorou^ examination and 

audit of the qualifi^ campaign expenses of every candidate and his authorized 

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

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

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

time to time as it deems necessary. 

Scope of Audit 

This audit examined original and amended reports filed by GJ2012 before the audit 

notification letter was sent on December 3,2012.^ The audit also examined the original 

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

covered by this audit: 

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

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

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

contributions; 

4. the disclosure of contributions received; 

5. the disclosure of disbursements, debts and obligations; 

6. the consistency between reported figures and bank records; 

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

8. the campaign's compliance with spending limits; 

9. the completeness of records; and 

10. other campaign operations necessary to the review. 

Inventory of Campaign Records 

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

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

immediately. 

Committee Structure 

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

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

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

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

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

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

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

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

information obtained to determine whether or not expenses were qualified campaign 

expenses defrayed in connection with the primary election. 

Audit Hearing 

GJ2012 requested an audit hearing. The request was granted and the hearing was held on 

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

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

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration April 22,2011 

• Date of Ineligibility^ Mays, 2012 

• Audit Coverage April 1,2011 - November 30,2014' 

Headquarters Salt Lake City, Utah 

Bank Information 

• Bank Depositories One 

• Bank Accounts One primary checking account and one general 

checking account 

Treasurer 

• Treasurer When Audit Was Conducted Chet Goodwin 

• Treasurer During Period Covered by Audit Elizabeth Hepworth (4/22/11 - 1/4/12) 

Chet Goodwin (1/5/12 - Present) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

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

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

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

matching funds it had received before DDI. Due to the campaign's outstanding debt, GJ2012 was able to submit 

primary election contributions received after DOl for matching as well. 

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

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

(Audited Amounts) 

Cash-on-hand ® April 1,2011 $0 

Receipts 

o Contributions from Individuals^ 2,249,318 

o Matching Funds Received^ 510,261 

Total Receipts $2,759,579 

Disbursements 

o Operating Expenditures 2,534,497 

o Fundraising Disbursements 153,019 

o Exempt Legal and Accounting 

Disbursements 28,130 

Total Disbursements $2,715,646 

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

^ GJ2012 received approximately 24,500 contributions from more than 1,400 individuals. 

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

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

Summaries 

Commission Findings 

Finding 1. Net Outstanding Campaign Obligations 

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

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

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional bank statements and invoices to show actual winding down costs, and did not 

dispute the Net Outstanding Campaign Obligations calculations contained in the 

Preliminary Audit Report. 

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

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

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

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

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

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

matched. 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional information, and disputed the Audit staffs conclusion. 

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

more detail, see p. 12.) 

Finding 3. Use of General Election Contributions for 

Primary Election Expenses 

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

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

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

In response to the Preliminary Audit Report, GJ20I2 stated that the use of general 

election receipts for primary election expenses was an advance against anticipated 

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

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

funds amounts. 
The Commission approved a finding that GJ2012 used $12,936 in general election 

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

see p. 20.) 

Finding 4. Reporting of Debts and Obligations 

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

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

and Obligations), as required. 

In response to the Preliminary Audit Report, GJ2012 submitted additional invoices for 

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

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

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

obligations on Schedule D-P. 

The Conunission approved a finding that that GJ2012 did not disclose debts to nine 

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

Additional Issue 

Extension of Credit by a Commercial Vendor 

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

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

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

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

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

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

NSON made a prohibited contribution to GJ2012. The Audit staff did not consider these 

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

or that GJ2012 was regularly and timely billed for services rendered. 

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

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

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

(For more detail, see p. 26.) 

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

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

NSON. 

* Available at http://www.fec.gov/directives/directive_70.pdf 
Summary of Amounts Owed to the United 

States Treasury 

• Finding 2.A. 

(p. 14) 

Payment of Non-Qualified Expenses 

with Primary Election Funds 

$ 332,191 

• Finding 2.B. 

(p. 18) 

Receipt of Matching Funds Based 

on Ineligible Contributions 

1,250 

Total Due U.S. Treasury $333,441 
Part IV ! 

Commission Findings 

I 

I 

Finding 1. Net Outstanding Campaign Obligations ! 

Summary 

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

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

payments in excess of his entitlement. 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional bank statements and invoices to show actual winding down costs, and did not 

dispute the Net Outstanding Campaign Obligations calculations contained in the 

Preliminary Audit Report. 

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

. excess of his entitlement. 

Legal Standard 

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

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

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

among other things: 

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

committee and capital assets listed at their fair market value; 

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

• An estimate of necessary winding-down costs. 11 CFR §9034.S(a). 

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

occurs first: 

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

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

receives less than 10 percent of the popular vote; 

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

party nominates its candidate for the general election; or 

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

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

the calendar year. 11 CFR §§9032.6 and 9033.5. 

C. Definition of Non-Quaiified Campaign Expense. A non-qualified campaign 

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

expense (see below). 

D. Qualified Campaign Expense. Each of the following expenses is a qualified 

campaign expense. 
• An expense that is: 

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

period beginning on the day the individual becomes a candidate and 

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

§9033.5; 

o Made in connection with the candidate's campaign for nomination; and 

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

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

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

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

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

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

activity. 11 CFR §9034.4(a)(3). 

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

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

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

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

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

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

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

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

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

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

A primary election candidate who runs in the general election must wait until 31 days 

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

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

11 CFR §9034.11(d). 

Facts and Analysis 

A. Facts 

The Candidate's date of ineligibility (DOl) was May 5,2012. The Audit staff reviewed 

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

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

appears on the following page. 
10 

Gary Johnson 2012, Inc 

Statement of Net Outstanding Campaign Obligations 

As of May 5,2012 

Prepared February 10,2015 

Assets 

Cash in bank 

Total Assets 

Liabilities 

Accounts Payable (A?) for Qualified Campaign 

Expenses as of 5/5/12 

A? (Primary Account) Billed Post-DDI 

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

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

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

Total LiabUities 

$ (10,856)' 

$ (1,268,352) 

(713,952) 

0 

(22,899) 

(112,268) 

$ (10,856) 

$(2,117,471) 

Net Outstanding Campaign Obligations 

(Deficit) as of May 5,2012 $(2,128,327) 

Footnotes to NOCO Statement; 

[a] The General election was held on November 6,2012. The winding down period began 31 days after 

the General election on December 7,2012. 

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

accordingly. 

Shown below are adjustments for funds received after the Candidate's DDI on May 5, 

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

Net Outstanding Campaign Obligations (Deficit) as of May 5, 

2012 

$(2,128,327) 

Less: Contributions Received (May 6,2012 to January 8, 

2013) 

1,216,661 

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

Remaining Net Outstanding Campaign Obiigations 

(Deficit) as of January 8,2013'** 

$ (279,649) 

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

entitlement. 

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

from the general election account. See Finding 3 on p. 20 for more detail. 

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

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

additional detail. 
11 

B. Preliminary Audit Report & Audit Division Recommendation. 

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

GJ2012 representatives at the exit conference. The preliminary NOCO statement showed 

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

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

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

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

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

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

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

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

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

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

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

The Audit staff recommended that GJ2012 demonstrate any adjustments it believes are 

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

additional cotrunents. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 did not dispute the 

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

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

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

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

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

not receive matching funds in excess of his entitlement. 

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ2012 submitted additional 

documentation and did not dispute the NOCO calculations. 

£. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ2012 accepted the Audit staffs Net 

Outstanding Campaign Obligations calculations that show that the Candidate did not 

receive matching fund payments in excess of his entitlement. 

F. Audit Hearing 

GJ2012 did not address Finding 1 during the audit hearing. 

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

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

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

November 14.2013. 

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

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

additional detail. 
12 

Commission Conclusion 

On June 18,201S, the Commission considered the Audit Division Recommendation 

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

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

The Commission approved the Audit staffs recommendation. 

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

Summary 

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

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

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

matched. 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional information, and disputed the Audit staffs conclusion. 

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

Legal Standard 

A. Qualified Campaign Expense. Each of the following expenses is a qualified 

campaign expense. 

• An expense that is: 

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

period beginning on the day the individual becomes a candidate and 

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

§9033.5; 

o Made in connection with the candidate's campaign for nomination; and 

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

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

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

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

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

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

activity. 11 CFR§9034.4(a)(3). 

B. Definition of Non-Quaiified Campaign Expense. .A non-qualified campaign 

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

expense (see above). These include, for example, but are not limited to: 

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

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

of debt on the NOCO could result in the Candidate having received matching fund payments in excess of 

his entitlement. 
13 

• Excessive expenditures. An expenditure which is in excess of any of the 

limitations under 11 CFR §9035 shall not be considered a qualifi^ campaign 

expense. 

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

costs pursuant to 11 CFR §9034.4(a)(3) and certain convention expenses 

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

date of ineligibility, as determined under 11 CFR §9033.5, are not qualified 

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

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

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

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

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

Election Campaign Act are not qualified campaign expenses and cannot be 

defrayed fix)m contributions or matching payments. Any amounts received or 

expended to pay such penalties shall not be considered contributions or 

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

Act. 

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

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

expenses, are not qualified campaign expenses. 

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

be considered a nonqualified campaign expense. Factors considered by the 

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

whether the committee demonstrates that it made conscientious efforts to 

safeguard the missing equipment; whether the committee sought or obtained 

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

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

§9034.4(b). 

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

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

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

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

§9038(b)(2)(A). 

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

repayment for non-qualified campaign expenses fix)m committees that have received 

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

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

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

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

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

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

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

election candidate who runs in the general election, regardless of whether the candidate 
14 

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

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

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

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

down costs. 11 CFR §9034.11(d). 

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

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

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

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

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

candidate's accounts. 11 CFR §9d38.2(b)(2)(iii). 

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

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

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

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

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

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

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

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

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

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

section. 11 CFR §9038.2(a)(2). 

Facts and Analysis 

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

1. Facts 

Ehiring an examination of disbursement records, the Audit staff identified 

$1,199,701 in disbursements for general election expenses paid with primary 

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

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

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

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

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

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

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

The initial amount of non-qualified expenses was subsequently reduced to $1,194,423 after the Audit 

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

calculated. 

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

amounts were riot allocated between campaigns, these are also non-qualified 

expenses. Additionally, the accounting staff for GJ2012 stated that expenses 

identified by themselves, or by NSON, as general election expenses were paid fix)m 

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

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

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

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

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

million in private contributions designated for the primary election were deposited 

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

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

primary election using the same calculations as in the Statement of Reasons In 

Support of Final Determination of Entitlement in the Matter of Govemor Gary 

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

To determine which general election expenses were paid using the contributions 

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

procedures: 

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

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

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

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

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

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

disbursements fix)m the bank statements that were not in GJ2012's database 

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

followed for the review of the general election account. 

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

of receipts separately (primary contributions, general contributions and 

receipts of matching fUnds from the U.S. Treasury). Contributions were 

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

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

disbursements in the following order: primary, general, matching funds. 

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

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

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

account ended on that date. 

Following these procedures resulted in the most favorable repayment calculation for 

GJ2012. 

Pursuant to 11 CFR §9038.2(b)(2)(iii)(B), calculation of non-qualified expenses from 

all of GJ2012's accounts would continue until no matching funds were lefi in any of 

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

completely and accurately calculate whether non-qualified expenses were paid with 
16 

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

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

accurately recorded. Although this information was requested, GJ2012 provided no 

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

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

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

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

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

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

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

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

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

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

examining the both accounts for non-qualified expenses.'® 

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

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

amount of $334,780.'* 

2. Preliminary Audit Report & Audit Division Recommendation 

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

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

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

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

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

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

Treasury. 

3. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report, GJ2012 counsel stated that since 

qualified campaign expenses exceeded Ae amount of matching funds received by 

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

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

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

general election funds. GJ2012 also states that expenses totaling $7,301 identified as 

being unallocated between primary and general activities were not paid with 

matching funds but solely with general election funds. 

Audit stafTs estimate of the additional amount of possible non-qualified expenses is SI 6,000, which 

would result in an additional repayment amount of about S4,4S0. The $16,000 estimate is based on the 

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

contributions to the primary election. 

Matching funds certified as of 90 days post-DOI divided by deposits for the Primary election as of 90 

days post-DOI ($303,751/51,088,509 = 0.279053). 

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

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

" See footnote 18. 
17 

In each of the instances noted above, GJ2012's calculation fails to apply the amount . 

of private contributions received and applied towards remaining net outstanding 

campaign obligations after the Candidate's DOI. Pursuant to 11 CFR §9034.4, "...all 

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

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

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

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

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

to indicate that matching funds were part of GJ2012's account balance until February 

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

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

subject to repayment. 

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

the Primary activity, including a $300,000^° win bonus owed to NSON, and states 

that these debts should be included in the calculation. In doing so, GJ2012 asserts 

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

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

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

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

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

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

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

are not included in the repayment calculation. 

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

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

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

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

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

The Audit staff recommended that the Commission make a determination that 

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

4. Draft Final Audit Report 

The Draft Final Audit Report acknowledged GJ2012's arguments for recalculation of 

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

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

Treasury. 

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

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

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

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

NOCO (Finding 1, p. 8). 

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

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

funds. 
18 

5. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Rqport, GJ2012 disputed the premise^^ for the 

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

GJ2012 acted in good faith. 

6. Audit Hearing 

Counsel stated that if it were not for the failure to update the disclaimer on GJ2012's 

website, GJ2012 would have been compliant with the Matching Fund Act. Counsel 

stated that GJ2012 acted as it thought it was allowed to, allocating the first $250 fiom 

each contributor to the primary election and getting that amount matched, and 

allocating all subsequent amounts from each contributor to the general election. 

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

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

the primary election account, thus keeping matchable and non-matchable 

contributions separate. He further stated that he sees the Audit staffs calculations, 

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

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

1984)). Counsel explained that the accounts were separate, with all matching funds 

and primary contributions kept in one account, and all general contributions kept in 

another account. He stated that every expense that primary funds were used for was a 

qualified expense, and that the activity is clearly separated. Counsel further stated 

that the repayment ratio formula did not need to be applied in this case because the 

activity can clearly be seen, and that using the repayment ratio does not meet the 

purpose of the statute. 

Counsel was also permitted to submit an additional statement after the audit hearing. 

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

repayment.^^ 

Commission Conclusion 

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

Memorandum in which the Audit staff recommended the Commission make a 

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

The Commission approved the Audit staffs recommendation. 

B. Receipt of Matching Funds Based on Ineligible Contributions 

1. Facts 

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

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

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

Recommendation Memorandum. 

As stated in footnote 22. 
19 

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

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

contributions was $1,250. 

2. Preliminary Audit Report & Audit Division Recommendation 

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

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

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

contributions were not general election contributions or provide any other additional 

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

Audit staff would make a recommendation that the Commission make a 

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

3. Committee Response to Preiiminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 stated that it 

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

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

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

appropriate amount to the U.S. Treasury. 

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

is repayable to the U.S. Treasury. 

4. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ2012 was investigating the 

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

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

5. Committee Response to the Draft Final Audit Report 

In response to the DEAR, GJ2012 agreed with the Audit staffs calculation of 

matching funds received based on contributions ineligible to be submitted, and stated 

that they would rq)ay this amount to the U.S. Treasury. 

6. Audit Hearing 

GJ2012 did not address this part of the finding during the audit hearing. 

Commission Conclusion 

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

Memorandum in which the Audit staff recommended the Commission make a 

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

The Commission approved the Audit staffs recommendation. 
20 

Finding 3. Use of General Election Contributions for 

Primary Election Eacpenses 

Summary 

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

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

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

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

election receipts for primary election expenses was an advance against anticipated 

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

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

funds amounts. 

The Commission approved a finding that GJ2012 used $12,936 in general election 

contributions for primary election expenses prior to the general election. 

Legal Standard 

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

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

designated for use in connection with the general election pursuant to 11 CFR §110.1 (b) 

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

acceptable accounting method to distinguish between contributions received for the 

primary election and contributions received for the general election. Acceptable 

accounting methods include, but are not limited to: 

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

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

(2) Regardless of the method used under paragraph (e)(1) of this section, an authorized 

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

received less the sum of general election disbursements made. 11 CFR § 102.9(e). 

Facts and Analysis 

A. Facts 

During audit fieldwork, the Audit staff reviewed available receipt and disbursement 

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

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

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

to spend fiinds designated to the general election for primary election expenses prior to 

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

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

election purposes. 

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

general election that was deposited in the primary election account. The Audit staff 
21 

determined the private contributions, designated for the gmeral election using the same 

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

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

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

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

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

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

up the difference. The Audit staffs review identified $12,396 in contributions designated 

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

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

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

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

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

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

B. Preliminary Audit Report & Audit Division Recommendation 

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

provided schedules detailing the payments made using general election funds for primary 

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

representatives did not comment on this finding. 

The Audit staff recommended that GJ2012 provide documentation to demonstrate that 

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

accordance with 11 CFR §102.9, documentation should demonstrate that an acceptable 

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

additional comments it considered necessary with respect to this matter. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 stated that the 

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

election contributions to the primary election. 

To the extent that GJ2012 is characterizing the advance of general election funds as a 

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

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

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

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

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

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

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

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

for primary election expenditures. 

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

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

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

this report, in practice, GJ2012 deposited nearly all receipts before DOI in its designated 
22 

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

GJ2012 ftirther stated that Audit stafTbased its calculation on cash on hand and did not 

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

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

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

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

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

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged GJ2012's statement that the use of general 

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

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

from a lending institution was allowable. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ2012 requested that the arguments made 

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

hearing to present its arguments. 

F. Audit Hearing 

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

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

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

outside funds for such short term matters. Counsel stated that the finding lacks context, 

and that it seems unreasonable and not the intent of the Act to force committees to engage 

in commercial transactions in order to cover such short term cash flow issues. Counsel 

emphasized that these were short-term loans only, and stated that he thought that it would 

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

Commission Conclusion 

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

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

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

general election. 

The Commission approved the Audit staffs recommendation. 

Finding 4. Reporting of Debts and Obligations 

Summary 

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

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

and Obligations), as required. 
23 

In response to the Preliminary Audit Report, GJ2012 submitted additional invoices for 

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

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

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

obligations on Schedule D-P. 

The Commission approved a finding that that GJ2012 did not disclose debts to nine 

vendors totaling $447,567, as required. 

Legal Standard 

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

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

52 U.S.C. §30104(b)(8) and 11 CFR §§104=3(d) and 104.11 (a). 

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

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

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

11 CFR§104.11(a). 

C. Itemizing Debts and Obligations. 

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

less must be reported on the next regularly scheduled report. 

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

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

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

11 CFR §104.11(b). 

Facts and Analysis 

A. Facts 

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

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

campaign management services such as fimdraising, accounting, clerical and 

administrative staff, and travel arrangements. 

The Audit staff identified debts to seven of GJ2012's vendors totaling $407,455 that were 

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

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

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

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

report, covering the time period from May 1,2012 through May 31,2012. 

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

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

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

over multiple reporting periods. 

The Audit staff restricted this review to only primary campaign debts, as per the scope of this Audit. 
24 

It should be noted that GJ2012 was invoiced for half of this debt ($150,000) on 

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

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

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

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

B. Preliminary Audit Report & Audit Division Recommendation 

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

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

the audit. In response to the exit conference, GJ2012 submitted one additional invoice 

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

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

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

The Audit staff recommended that GJ2012 provide documentation demonstrating that 

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

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

the outstanding debts. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 amended its 

reports and submitted additional invoices and documentation for other previously 

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

documentation provided reduced the original determination of debts and obligations not 

timely reported amount by $7,758. 

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

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

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

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

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

amendments that materially corrected these omissions. 

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

owed to NSON for a bonus was not timely reported. GJ2012 states that the NSON 

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

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

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

Pursuant to 11 CFR §104.11(b), "[a] debt or obligation, including a loan, written contract, 

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

date on which the debt or obligation is incurred..." GJ2012 made a written agreement on 

October 14,2011, that NSON would be owed a bonus of "$300,000 for receiving any 

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

the Candidate's nomination by the Libertarian Party at its convention on May 5,2012, 
25 

and should have been reported as a debt or obligation on Schedule D-P on the June 

Monthly Report that covered May 1,2012 through May 31,2012, regardless of when it 

was invoiced. 

•In a supplemental response to the Preliminary Audit Report, GJ2012 stated that it has 

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

the date of the Candidate's nomination, despite not having been invoiced.^^ GJ2012 filed 

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

D. Draft Final Audit Report 

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

correct its reporting of debts and obligations. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ2012 discussed its method of accounting, 

in which GJ2012 "re-allocated payments" in December of 2014 to pay off $171,000 of 

the $300,000 win bonus within the 30-day regulatoiy requirement, so that the $171,000 

would be considered a qualified expense. GJ2012 also requested an audit hearing to 

address this matter. 

F. Audit Hearing 

During the audit hearing. Counsel stated that GJ2012 had amended its reports to correctly 

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

regarding this finding. 

Commission Conclusion 

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

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

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

The Commission approved the Audit staffs recommendation. 

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

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

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

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

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

being paid within the statutory 30 day period (see footnote 20 for additional detail), so this remains a 

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

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

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

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

Finding 4. 
26 

Party 

Additional Issue 

Extension of Credit by a Commercial Vendor 

Summary 

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

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

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

$1,752,032 fix)m GJ2012 for services rendered. 

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

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

NSON made a prohibited contribution to GJ2012. The Audit staff did not consider these 

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

or that GJ2012 was regularly and timely billed for services rendered. 

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

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

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

Legal Standard 

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

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

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

contribution. The term "any^ng of value" includes all in-kind contributions. 

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

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

The provision of services at a charge less than the usual and normal charge results in an 

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

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

billed and paid. 11 CFR § 100.52(a) and (d). 

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

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

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

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

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

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

NSON. 

^ Available at http://www.fec.gov/directives/directive_70.pdf 
27 

normal business involves the sale, rental, lease or provision of those goods or services. 

11 CFR §116.1(0). 

D. Extension of Credit by Commerciai Vendor. A commercial vendor, whether or not 

it is a corporation, may extend credit to a candidate or political committee provided that: 

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

and 

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

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

11 CFR § 116.3(a) and (b). 

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

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

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

in approving the extension of credit; 

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

credit to the same candidate or political committee; and 

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

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

Facts and Analysis 

A. Facts 

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

that GJ2012 accepted a prohibited contribution that NSON made by extending credit 

beyond its normal course of business and not making commercially reasonable attempts 

to collect $1,752,032 from GJ2012 for services rendered relating to the primary 

election.^" 

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

campaign. NSON handled fundraising, press and media relations, creative advertising, 

and all administrative functions of the primary election campaign. Disbursements to 

NSON totaled 86% of the total of all disbursements by GJ2012, and 89% of GJ2012's 

outstanding debt as of December 31,2012 was owed to NSON. From April 21,2011 

through December 21,2012, NSON invoiced GJ2012 $2,198,204 for campaign 

management expenses, including fundraising, clerical work, and travel arrangements. As 

of March 31,2013, $1,752,032 had been outstanding more than 120 days, and $936,247 

remains outstanding. To date, GJ2012 has only made payments of $1,261,957 for the 

$2,198,204 invoiced by NSON. 

The terms of the contract between GJ2012 and NSON stated that: 

NSON may assess a carrying charge of eighteen percent (18%) per annum on payments 

not made within thirty (30) days of the date of the invoice. NSON may, at its sole 

discretion and without notice, suspend its services hereunder should Client not pay in 

Audit staff restricted this review to only primary campaign services, as per the scope of this audit. 
28 

.. full any amount invoiced.. NSON further reserves the right, at its sole discretion to 

withhold from Client any instruments of NSON's services pending payment on Client's 

account. 

NSON had not assessed any interest charges as of March 31,2013. During audit 

fieldwork, GJ2012 did not provide Audit staff with documentation of attempts by NSON 

to collect on the outstanding debt. 

B. Preliminary Audit Report & Audit Division Recommendation 

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

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

Audit staff requested that GJ2012 provide evidence that NSON made commercially 

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

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

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

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

dated December 31,2013, for $245,527 in interest on the outstanding debts from GJ2012 

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

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

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

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

owed by the political committee. 

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

Ongoing anempts have been made and continue to be made to collect the 

outstanding debt owed from the Gary Johnson 2012 campaign. These 

include support and help with continued solicitation for donations. Any and 

all other legal remedies are and will be considered to satisfy the obligation. 

The Audit staff reviewed the documentation submitted in response to the exit conference. 

Although GJ2012 provided an internally generated aging schedule and a copy of a 

lawsuit filed, GJ2012 did not provide any contracts with, or invoices to, other clients of 

NSON. As such, the Audit staff could not verify with a reasonable certainty that 

NSON's contract with GJ2012 was offered on the same terms or pursued in the same 

manner as other NSON clients, political or non-political. 

In addition, on June 18,2014, GJ2012 submitted several new invoices for interest 

charged by NSON on debts outstanding from January 2014 through June 2014. 

The Audit staff recommended that GJ2012 provide documentation, to include statements 

from this vendor that demonstrates the credit extended was in the normal course of 

business and did not represent an excessive in-kind contribution by the vendor. The 

information provided may include examples of other non-political customers/clients of 

similar size and risk for which similar services were provided and similar billing 

arrangements were used. Also, Audit staff recommended that GJ2012 provide 

information conceming the presence of safeguards such as billing policies for similar 

non-political clients and work, advance payment policies, and debt collection policies and 
29 

practices to show that diis was normal business practice for NSON or provide additional 

explanation about the situation. 

C. Committee Response to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

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

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

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

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

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

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

discussions with.GJ2012 to accept campaign assets in lieu of payment. 

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

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

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

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

doing so would enable the clients to raise funds. 

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

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

interest fees "as is routine in such matters." 

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

cannot verify whether or not the clients are political or non-political. Since the nature of 

these entities cannot be verified, the Audit staff does not find these contracts to be 

adequate evidence that credit was extended to GJ2012 in the same way as other political 

and non-political clients. 

Furthermore, documentation provided by GJ2012 to show that NSON attempted to 

collect on outstanding debts did not show that "NSON regularly invoiced GJ2012 for all 

services..In fact, GJ2012 was not invoiced for services in some cases until months or 

even more than a year after the services were performed. NSON did not submit invoices 

for interest due on amounts owed until December 31,2013, more than a year after the 

Candidate's date of ineligibility, for invoices that had been outstanding for thirteen (13) 

to twenty-two (22) months. In addition, no documentation such as invoices to other nonpolitical clients has been presented to show that NSON has also treated the collection of 

amounts due by non-political clients in the same maimer. 

Pursuant to 11 CFR §9034.5(c). Presidential campaigns are required to report on the 

NOCO all capital assets whose purchase price exceeded $2,000, and other assets whose 

value exceeds $5,000, and maintain a list of these items. GJ2012 did not disclose any 

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

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

to 11 CFR §116.7. 
30 

assets on the NOCO statements submitted when applying for matching funds, nor were 

any lists provided to the Audit staff during fieldwork. The Audit staff requests that 

GJ2012 submit documentation for any assets owned and not previously disclosed to the 

Commission. 

The Audit staff notes that NSON had billed GJ2012 $345,333 in interest as of October 

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

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

NOCO in Finding 1 of this report. 

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

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

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

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

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

D. Draft Final Audit Report 

The Draft Final Audit Report acknowledged that GJ2012 submitted redacted contracts 

between NSON and other clients, and an affidavit from Ron Nielson, proprietor of NSON 

that stated his company did not extend credit to GJ2012 that it would not have extended 

to a similar non-political campaign. Mr. Nielson stated that NSON exercises discretion 

in the assessing and collecting of finance charges in order to collect on the principal, and 

that NSON has previously waived finance charges in favor of collecting on the principal. 

In addition, Mr. Nielson stated that NSON has engaged in discussions with GJ2012 to 

accept campaign assets in lieu of payment. 

E. Committee Response to the Draft Final Audit Report 

In response to the Draft Final Audit Report, GJ2012 stated that NSON should not be 

forced to reveal the names of its clients, and that it is in the normal course of business for 

an entity to be late in billing. GJ2012 further stated that it could not value the assets 

referred to in their response to the Preliminary Audit Report at this time, and that it will 

not pursue debt settlement until after the audit is completed. In its response to the Draft 

Final Audit Report, GJ2012 also requested an audit hearing to present the Committee's 

arguments. 

F. Audit Hearing 

During the audit hearing. Counsel stated that GJ2012 does not believe that there was any 

extension of credit by NSON outside its normal course of business. Counsel stated that 

the language of the contract stated that NSON may assess interest charges, not that the 

company must assess those charges. Counsel further stated that vendors regularly use the 

threat of interest charges as leverage and do not always assess those charges. In addition. 

Counsel stated that there is nothing that says a vendor must sue in order to get paid. In 

fact, it would not be in the vendor's best interest to litigate, as it might damage its 

reputation and may lead to a difficulty in finding or keeping other clients. Counsel stated 

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

adjustment. 
31 

that any vendor would work with their client in order to seek payment without litigation, 

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

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

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

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

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

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

Counsel addressed the Audit staffs assertion in the Draft Final Audit Report that it is 

unable to determine whether the contracts between NSON and other clients indicate that 

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

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

contracts are all substantially similar shows that NSON contracted in the same manner 

with all its clients. Counsel further stated that it would not be reasonable to breach 

confidentiality with those clients to reveal their names so that the Audit staff can verify 

that the provided contracts are with both political and non-political clients. 

Commission Conclusion 

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

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

made a prohibited contribution to GJ2012 by extending credit beyond the normal course 

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

GJ2012 for services rendered. 

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

recommendation. Some Commissioners voted to approve the Audit staffs 

recommendation. Others did not, stating that they deemed the affidavit from Mr. 

Nielson, contracts showing substantially similar terms offered to other clients, accounts 

receivable aging schedules for both GJ2012 and other clients, and invoices for interest 

charged by NSON on outstanding debt sufficient to document that the billing practices 

were normal and usual. 

This contribution is discussed in the "Additional Issue" section pursuant to Commission 

Directive 70.^^ 

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