Preliminary Audit Report of the 

Audit Division on 

John EkLwards for President 

January 3, 2007 - March 31, 2008 

^ The audit 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political committee 

established by a candidate 

who receives public funds 

for the primary 

campaign.' 

determines whether the 

candidate was entitled to 

all of the matching fiinds 

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 Conmiission may 

initiate an enforcement 

action, at a later time, 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign (p. 2) 

John Edwards for President is the principal campaign committee 

for John Edwards, a candidate for the Democratic Party's 

nomination for the office of President of the United States. The 

Committee is headquartered in Chapel Hill, NC. For more 

information, see the chart on the Campaign Organization, p.2. 

Financial Activity (p. 3) 

• Receipts 

o Contributions From Individuals 

o Matching Funds Received 

o Bank Loan 

o Offsets to Expenditures 

o Other Receipts 

Total Receipts 

• Disburseinents 

o Operating Expenditures 

o Contribution Refunds 

o Loan Repayments and Other 

Disbursements 

Total Disbursements 

$39,643,966 

7.404,083 

8,974,714 

967,088 

129,527 

$57,119,378 

$44,405,156 

3,720,268 

7,383,067 

$55,508,491 

Findings and Recommendations (p. 4) 

• Matching Funds Received in Excess of Entitlement 

(Finding 1) 

• Misstatement of Financial Activity (Finding 2) 

• Failure to Itemize Loan Repayments (Finding 3) 

• Stale-Dated Checks (Finding 4) 

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

Audit Division on 

John Eklwards for President 

January 3, 2007 - March 31, 2008 
Table of Contents 

Page 

Part I. Backgroimd 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Part II. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 3 

Part III. Smnmaries 

Findings and Reconmiendations 4 

Sunmiary of Amounts Potentially Owed to the U.S. Treasury 5 

Part IV. Findings and Recommendations 

Finding 1. Matching Funds Received in Excess of Entitlement 6 

Finding 2. Misstatement of Financial Activity 13 

Finding 3. Failure to Itemize Loan Repayments 14 

Finding 4. Stale-Dated Checks 15 
Parti 

Background 

Authority for Audit 

This report is based on an audit of John Edwards for President (JEFP), undertaken by the 

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

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

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

audit of the qualified campaign expenses of every candidate and his authorized 

committees who received payments under section 9037." Also, Section 9039(b) of the 

United States Code and Section 9038.1(a)(2) of the Commission's Regulations state that 

the Commission may conduct other examinations and audits from time to time as it 

deems necessary. 

Scope of Audit 

This audit examined: 

1. The receipt of excessive contributions and loans. 

2. The receipt of contributions from prohibited sources. 

3. The receipt of transfers from other authorized committees. 

4. The disclosure of contributions and transfers received. 

5. The disclosure of disbursements, debts and obligations. 

6. The recordkeeping process and completeness of records. 

7. The consistency between reported figures and bank records. 

8. The accuracy of the Statement of Net Outstanding Campaign Obligations. 

9. The campaign's compliance with spending limitations. 

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 the 

audit fieldwork. JEFP*s records were substantially complete and the fieldwork began 

immediately. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates John Edwards for President 

• Date of Registration January 5,2007 

• Eligibility Period October 31,2007 - January 30,2008^ 

• Audit Coverage January 3,2007 - March 31,2008^ 

Headquarters Chapel Hill, North Carolina 

Bank Information 

• Bank Depositories Three 

• Bank Accounts 17 Checking, 2 Investment 

Treasurer 

• Treasurer When Audit Was Conducted Julius L. Chambers 

• Treasurer During Period Covered by 

Audit 

Julius L. Chambers 

Management Information 

• Attended FEC Campaign Finance 

Seminar 

Yes 

• Used Conmionly Available Campaign 

Management Software Package 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

^ The period during which the candidate was eligible for matching funds began on the date of certification 

of his matching fund eligibility and ended on the date the candidate announced his withdrawal from the 

campaign. See 11 CFR §9033. 

^ Limited reviews of receipts and expenditures were performed after March 31,2008, to determine whether 

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

(Audited Amounts) 

Cash on hand @ January 3,2007 $0 

o Contributions From Individuals 39,643,966 

o Matching Funds Received 7,404,083'' 

o Bank Loan 8,974,714 

o Offset to Expenditures 967.088 

o Other Receipts 129,527 

Total Receipts $57,119378 

o Operating Expenditures 44,405,156 

o Contribution Refunds 3,720,268 

o Loan Repayments and Other Disbursements 7.383,067 

Total Disbursements $55,508,491 

Cash on hand @ March 31,2008 $ 1,610,887 

* JEFP received an additional $5,478,795 in matching funds after March 31,2008 for a total of 

$12,882,878. This represents 61% ofthe maximum entitlement ($21,025,000) a Presidential candidate 

could have received in the 2008 cycle. 
Part III 

Summaries 

Findings and Recommendations 

Finding 1. Matching Funds Received in Excess of 

Entitlement 

A review of JEFP*s financial activity through December 31.2008. and estimated winding 

down costs indicated that it received matching fimds over $2.3 million in excess of the 

Candidate's entitlement. JEFP*s Statement of Net Outstanding Campaign Obligations 

(NOCO) understated its cash-on-hand, overstated its accounts payable, and overstated its 

winding down expenses. The Audit staff recommends that JEFP provide evidence that it 

did not receive matching funds in excess of entitlement. Absent such evidence, the Audit 

staff will reconmiend that the Commission make a determination that $2,352,348 is 

repayable to the United States Treasury. (For more detail, see p. 6) 

Finding 2. Misstatement of Financial Activity 

A comparison of JEFP*s reported financial activity to its bank records revealed a material 

misstatement of reported cash-on-hand in calendar year 2007 through March 31,2008. 

JEFP understated its December 31,2007, cash-on-hand balance by $585,814 and 

understated its March 31,2008, cash-on-hand balance by $468,676. The Audit staff 

reconmiends that JEFP amend its most recently filed report to correct the cash-on-hand 

balance. (For more detail, see p. 13) 

Finding 3. Failure to Itemize Loan Repayments 

The Audit staff identified loan repayments totaling $4,344,469 that were not itemized. 

Although the amounts were reported by JEFP on the Detail Sunmiary Pages and itemized 

on Schedule C (Loans) and Schedule C-1 (Loans and Lines of Credit From Lending 

Institutions), they were not itemized on Schedule B-P (Itemized Disbursements). The 

Audit staff recommends that JEFP file amended reports to itemize the loan repayments. 

(For more detail, see p. 14) 

Finding 4. Stale-Dated Checks 

The Audit staff identified 202 stale-dated checks totaling $267,529. It is recommended 

that JEFP provide evidence that the checks are not outstanding or make a payment to the 

United States Treasury. (For more detail, see p. 15) 
Summary of Amounts Potentially Owed to 

the United States Treasury 

• Finding 1 Matching Funds Received in Excess $2,352,348 

of Entitlement 

• Finding 4 Stale-Dated Checks 267,529 

Total Due U.S. Treasury $2,619,877 
Part IV 

Findings and Recommendations 

Finding 1. Matching Funds Received in Excess of 

Entitlement 

Summary 

A review of JEFP*s financial activity through December 31,2008, and estimated winding 

down costs indicated that it received matching funds over $2.3 million in excess of the 

Candidate's entitlement. JEFP's Statement of Net Outstanding Campaign Obligations 

(NOCO) understated its cash-on-hand, overstated its accounts payable, and overstated its 

winding down expenses. The Audit staff reconmiends that JEFP provide evidence that it 

did not receive matching funds in excess of entitlement. Absent such evidence, the Audit 

staff will recommend that the Conimission make a determination that $2,352,348 is 

repayable to the United States Treasury. 

Legal Standard 

A. Net Outstanding Campaign Obligations. Within 15 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 conimittee 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 §9034.5(a). 

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

occurs first: 

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

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

receives less than 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. 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(a). 

• 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(a)(2). 

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

activity. 11 CFR §9034.4(a)(3). 

• Monetary bonuses paid after the date of ineligibility for committee employees and 

consultants shall be considered qualified campaign expenses provided that they 

are paid in recognition of campaign related activities or services; are paid 

pursuant to a written contract made before the date of ineligibility; and, are paid 

no later than 30 days after the date of ineligibility. 11 CFR §9034.4(a)(5). 

D. Value of Capital Assets. The fair market value of capital assets is 60% of the total 

original cost of the assets when acquired. A candidate may claim a lower fair market 

value for a capital asset by listing the asset on the NOCO statement separately and 

demonstrating, through documentation, the lower fair market value. 11 CFR 

§9034.5(c)(l). 

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

ineligibility, a candidate has net outstanding campaign obligations as defined under 11 

CFR §9034.5, that candidate may continue to receive matching payments provided that 

he or she still has net outstanding campaign debts on the day the matching payment is 

made. 11 CFR §9034.1(b). 

Facts and Analjrsis 

The Audit staff prepared a Statement of Net Outstanding Campaign Obligations as of 

January 30,2008, the Candidate's date of ineligibility (DOI). The audited statement that 

appears on the next page was based on the review of JEFP's financial activity through 

December 31,2008 and includes estimates for winding down costs thereafter. The Audit 

staff and JEFP agree on all NOCO components except for accounts payable for qualified 

campaign expenses. 
John Edwards for President 

Statement of Net Outstanding Campaign Obligations 

As of January 30,2008 

Prepared thru April 30,2010 

Primary Election Cash in Bank 

General Election Cash in Bank 

Accounts Receivable 

Capital Assets 

Total Assets 

Liabilities 

Primary Election Accounts Payable for Qualified 

Campaign Expenses @ 1/30/08 

Refund of General Election Contributions 

Loan Payable @ 1/30/08 

Actual Winding Down Costs (1/31/08 - 4/30/10) 

Estimated Winding Down Costs (5/1/10 - 12/31/11) 

Payable to U.S. Treasury - Stale-Dated Checks 

$3,971,887 

3,321,290 

455,789 

29,134 

$2,313,509 

3,321,290 

8,974,713 

2,584,568 

1,423,060 

72,583 

[a] 

$7,778,100 

$18,689,723 

($10,911,623) 

Total Liabilities 

Net Outstanding Campaign Obligations (Deficit) as of January 30,2008 ^ 

Footnote to NOCO Statement: 

[a] Estimated winding down costs will be compared to actual winding down costs and adjusted accordingly. 

Shown below are adjustments for fimds received after January 30,2008 through July 17, 

2008. 

Net Outstanding Campaign Obligations (Deficit) as of 1/30/08 

Private Contributions Received 1/31/08 through 7/16/08 

Inteiest Income Received 1/31/08 through 7/16/08 

Matching Funds Received 1/31/08 through 7/16/08 

Remaining entitlement as of 7/16/08 

Matching Funds Received 7/17/08 

Amount Received in Excess of Matching Fund Entitlement 

($ 10,911.623) 

358,983 

22.110 

8,825.425 

($ 1,705.105) 

4.057.453 

$ 2,352,348 
As a result. JEFP was not entitled to $2,352,348 of the matching fund payment 

($4,057,453) it received on July 17.2008. 

This matter was presented to JEFP at the exit conference held on February 3.2009. and. 

at JEFP's insistence, a second exit conference on April 2.2009. after additional records 

were provided by JEFP. The Audit staffs NOCO and workpapers supporting all NOCO 

components were also provided. 

Cash In Bank 

The primary difference between the NOCO presented on the previous page and those 

prepared by JEFP is the cash-in-bank balance. JEFP understated cash by $4.5 million. 

Most of the understatement of cash represented fimds received for the general election 

during the primary election period. The understatement of assets caused the NOCO 

statements to show a larger deficit and matching fund entitlement than was the case. The 

Audit staff and JEFP agree on the cash balances presented in the NOCO statement. 

Accounts Payable for Qualified Campaign Excuses - Pajrroll 

Even though JEFP's accounts payable figure on its NOCO was not accurate, the Audit 

staff and JEFP now agree on the amount of accounts payable, except for the February 7. 

2008 payroll. The Audit staffs calculation of accounts payable on the NOCO statement 

does not include $556,871 in payroll paid on February 7.2008. Absent further 

documentation. $556,871 is considered to be a monetary bonus paid to 99 employees. As 

noted in the legal standards, in order to be qualified campaign expense, monetary bonuses 

paid after DOI to employees in recognition of campaign-related activities or services 

must be paid no later than 30 days after DOI and provided for pursuant to a written 

contract made prior to DOI (11 CFR §9034.4(a)(5)). JEFP representatives confirmed that 

there were no written contracts. 

Analysis of the February 7, 2008 Pasrroll 

JEFP staff was paid twice monthly from inception through January 30,2008. In January 

2008, the payroll periods ended on January 15,2008 and January 30,2008. On January 

31,2008. another pay period was concluded. This payroll totaled $761,193 and was paid 

on February 7.2008. The amount, in effect, tripled each employee's pay for the month of 

January. 

Throughout the audit fieldwork. numerous requests were made for an explanation and 

documentation of this payroll. Approximately 5 weeks after the initial request, the 

Assistant Treasurer responded that the purpose of the Febmary 7.2008. payroll was to 

reimburse employees who had not been paid their entire salary due to limited funds 

available beginning sometime in August 2007. Although requested, no specific details 

were provided to explain how this payroll was calculated or which employees were not 

paid their full salary. At the exit conference, the Assistant Treasurer was made aware 

that documentation supporting this payroll had not been made available. 

During the exit conference response period, the Audit staff analyzed JEFP's payroll for 

the period August 2007 throu^ January 2008. Our review indicated that JEFP's 
10 

explanation was incorrect. Employees were paid in full from August 2007 through 

January 15.2008. However, the following pay period which ended January 30,2008, 

employees received half of their normal net pay.^ Therefore, the Audit staff considered 

that portion of the February 7,2008, payroll necessary to make up the difference in net 

pay plus associated employee/employer payroll taxes ($204,322) to be a qualified 

campaign expense and included the amount on the NOCO in accounts payable. The 

remaining portion of the February 7,2008 payroll or $556,871 is considered a nonqualified campaign expense and not included in the NOCO payables. 

Subsequent to JEFP's response to the exit conference, a second explanation of this 

payroll was provided. The Assistant Treasurer indicated that as of January 1,2008, 

campaign staff worked 24 hours a day, 7 days a week, with the understanding that salary 

would be increased for those affected. The Assistant Treasurer fiirther indicated that 

JEFP did not have sufficient funds to pay the increased salary on the normal pay dates in 

January and that after DOI, JEFP calculated the total amount due each employee and paid 

the increased salary on February 7,2008. It is JEFP's opinion that the February 7.2008. 

payroll represents a qualified campaign expense, which was due at DOI and. therefore, 

should be included in the NOCO. 

With respect to resources not being available during January 2008 to pay the increased 

salaries. JEFP records indicate its average daily cash was approximately $4.2 million for 

January, excluding general election contributions which could not be used for primary 

expenses. Further, no explanation was offered as to how the increased amount was 

calculated, how and when employees were notified, or documentation for the decision to 

increase salary. As a result. JEFP's explanation has not been accepted. 

JEFP was notified of the Audit staffs conclusion by email. The email explained that 

$556,871. representing employee net pay and employee/employer payroll taxes, would 

not be included in the NOCO. JEFP was provided 10 days to respond. Counsel for JEFP 

(Counsel) objected to the notification by email and demanded a second exit conference. 

Although not required, a second exit conference was held. The Audit staff again 

informed JEFP that $556,871 of salary and payroll taxes were considered non-qualified 

campaign expenses, excludable from the NOCO. Counsel offered as a possible (third) 

explanation that certain staff may have traveled to state office locations in order to clean 

out the offices and retum rental cars. Again. JEFP was provided an additional 10-day 

response period. 

In response. Counsel stated that in December 2007 JEFP determined that those staying 

through the end of the campaign would receive a salary increase, which would be paid 

out as permitted by JEFP resources. This pay increase was intended primarily to 

compensate staff for the fact that JEFP dispatched staff to many different field locations 

throughout the country for the January primaries and caucuses, placing them on an 

^ It is not clear why this payroll was reduced. As can be seen from the NOCO statement, JEFP appears to 

have had funds available to meet the payroll even setting aside the general election contributions which 

could not be used for primary expenses. 
11 

around-the-clock schedule. The increase in pay was also designed to cover increased 

costs that staffers were required to incur because they were on the road. In addition. 

Counsel stated that on January 30.2008. the date of ineligibility, JEFP had approximately 

70 office and volunteer sites in several cities in various states. Staff had been deployed to 

these locations, where it was necessary to clean out and close field offices. JEFP 

determined that it would be more efficient to pay these individual a finite amount in lieu 

of any attempt to have employees tum in receipts for reimbursement. According to 

Counsel, this would have been a difficult accounting process, which JEFP could more 

efficiently manage by a lump sum salary payment. 

A few days later, JEFP provided a schedule that refiected JEFP's determination that all 

employees received a 31% increase in salary between December 23,2007 and Febmary 

15,2008. which was paid in one lump sum on Febmary 7.2008. JEFP gave examples of 

3 different employees and how this paycheck would have been allocated between payable 

and winding down categories. 

With respect to the accounting burden of paying travel expenses. JEFP had accounting 

procedures in place for handling travel reimbursements. Throughout the campaign, the 

staff submitted travel reimbursements; some were included in the NOCO's accounts 

payable. The effect of a campaign increasing salary in lieu of paying for travel 

reimbursements creates additional expenses for the campaign, such as the employer's 

share of payroll taxes, not to mention the additional tax burden placed on employees. 

While it is reasonable that some staff would have been involved in the office close out 

process, it is not likely that all staff, such as the chief of staff, chief financial officer, and 

the finance director, took part in this effort. The close out took place after DOI when 

only 14 people remained on the payroll. 

Estimated IX^ding Down Expenses 

In response to the exit conference. JEFP estimated it would spend a total of $2,771,004 in 

winding down expenses for calendar years 2009 through 2011 ($969,972 for 2009. 

$959,972 for 2010. $841,060 for 2011).^ For the period. January 31.2008 through April 

30,2010, estimates were converted to actual winding down expenses. Based on JEFP's 

actual spending from January 2009 through April 2010, the Audit staff has calculated that 

estimated winding down expenses for the period May 1,2010, through December 31, 

2011, of $1,423,060 may be necessary to wind down the campaign. With the exception 

of the adjustment for storage costs, the Audit staffs remaining estimated winding down 

expenses are very close to the amount calculated by JEFP. 

It should be noted that throughout the post-audit period, estimated winding down 

expenses are consistently monitored. Bank records and reported activity are reviewed in 

order to convert estimated winding down expenses to actual winding down expenses. 

^ In its 2009 estimates, JEFP included storage cost of $18,000 for the next 7 years. JEFP inadvertently 

included this same cost in its 2010 and 2011 estimates. The necessary adjustment has been made. 
12 

JEFP's Overall Objection to the Repayment of lifatching Funds 

JEFP argues that the combination of a shortfall in the Presidential Primary Matching 

Payment Account (Matching Payment Account) and the lack of a quomm in the 

Commission during the first half of 2008 put JEFP at a disadvantage with respect to the 

receipt of matching fimds. It is argued that matchable contributions received prior to 

DOI should be matched regardless of whether there are qualified campaign expenses to 

pay. and concludes that the failure to match these contributions violates the First 

Amendments rights of both the candidate and those individuals who contributed to the 

candidate's committee. 

Under 26 USC §9033(c)(2). a candidate who has passed the date of ineligibility is not 

entitled to any fiirther matching fimd payments except to defray qualified campaign 

expenses incurred before the candidate became ineligible. The fact that contributions 

were received that would otherwise be matchable does not determine whether the 

candidate is eligible for further payments. The intent of this section is to allow the 

candidate to receive matching fimds after the date of ineligibility only to pay debts for 

qualified campaign expenses. In implementing this provision, the Commission 

considered both debts incurred before the date of ineligibility and necessary costs of 

wrapping up the campaign. It also established a procedure to monitor whether the 

candidate still has qualified campaign expenses to be paid prior to each post date of 

ineligibility payment; the NOCO Statement.^ Finally, the possibility of a shortage in the 

Matching Payment Account is recognized and an equitable distribution calculation is 

specified in both 26 USC §9037(b) and 11 CFR §9037.2. That equitable distribution 

formula was followed. 

Subsequent to the date of ineligibility, campaigns are required to submit a NOCO 

indicating the campaign has sufficient net debt to justify additional matching funds. The 

last matching fimd payment JEFP received was $4,057,453 on July 17.2008. This 

payment was based on a NOCO filed on June 25,2008 that refiected net debt of 

$4,684,340. However, as previously noted, that NOCO statement was misstated. 

There is no question that the combination of the shortfall in the Matching Payment 

Account and the lack of a quorum on the Commission delayed payments. The 

Commission took all steps in its power to minimize the impact on all matching fimd 

recipients. All matching fimds requests received through December of 2007 were 

processed and certified while the Commission still had a quomm. That allowed the 

Treasury Department to begin making payments as soon as funds became available 

without the need for fiirther Commission action. All payments certified by the 

Conimission before January 1,2008, were paid as fimds became available between 

Febmary and April 2008. This procedure also allowed campaigns to borrow fimds using 

the matching funds as collateral. JEFP used this avenue to borrow $8.9 million in 

November and December 2007 before any payments could have been made under any 

circumstances. Even though the Commission could not certify any payments during the 

first half of 2008. matching fimd requests received after January 1,2008. were processed, 

See 11 CFR 9034.1(b), and 9034.5 
13 

and the campaigns were informed of the matchable amount. Campaigns could use those 

amounts as collateral for loans if they desired. Finally, any additional expenses incurred 

by campaigns as a result of these circumstances, such as interest on loans or increased 

legal costs, would have been treated as qualified campaign expenses and could have 

resulted in additional matching fimd entitlement. 

In summary, although it is tme that matching fimd payments were delayed during the first 

half of 2008, the Act and Commission's regulations are clear that in order to receive 

matching fimd payments after the date of ineligibility a candidate must have net 

outstanding campaign obligations on the date that the matching fimd payments are made. 

JEFP does not argue that it had sufficient obligations to justify the full amount it received 

and agrees that it significantly understated its assets on its NOCO Statement. The fact 

that there may be contributions received before the date of ineligibility that were not 

matched or that payments were delayed for reasons beyond the control of the 

Commission or JEFP, does not allow JEFP to receive matching fimd payments after the 

date of ineligibility in excess of the amount of qualified campaign expenses to be paid. 

Based on the above, JEFP was not entitled to $2,352,348 of the matching funds payment 

($4,057,453) it received on July 17,2008. 

Preliminary Audit Report Recommendation 

The Audit staff recommends that, within 60 calendar days of service of this report, JEFP 

demonstrate that it did not receive matching fimds in excess of its entitlement. Absent 

such a demonstration, the Audit staff will recommend that the Commission make a 

determination that $2,352,348 in matching funds is repayable to the United States 

Treasury. 

I Finding 2. Misstatement of Financial Activity 

Summary 

A comparison of JEFP's reported financial activity to its bank records revealed a material 

misstatement of reported cash-on-hand in calendar year 2007 through March 31.2008. 

JEFP understated its December 31.2007. cash-on-hand balance by $585,814 and 

understated its March 31,2008, cash-on-hand balance by $468,676. The Audit staff 

recommends that JEFP amend its most recently filed report to correct the cash-on-hand 

balance. 

Legal Standard 

Contents of Reports. Each report must disclose: 

• . The amount of cash on hand at the beginning and end of the reporting period; 

• The total amount of receipts for the reporting period and for the election cycle; and 

• The total amount of disbursements for the reporting period and for the election cycle. 

• Certain transactions that require itemization on Schedule A (Itemized Receipts) or 

Schedule B (Itemized Disbursements). 2 U.S.C. §434(b)(l), (2), (3), (4), and (5). 
14 

Facts and Analjrsis 

A comparison of JEFP's reported financial activity to its bank records revealed a material 

misstatement of reported cash-on-hand for calendar year 2007 through March 31,2008. 

The ending cash-on-hand balance for calendar year 2007 was understated by $585,814 

and the ending cash-on-hand balance as of March 31,2008 was understated by $468,676. 

The misstatement of cash on hand was primarily due to two factors. First, JEFP 

understated unitemized receipts, most of which represented small credit card transactions. 

This was due to a contribution processing software malftmction. JEFP was unaware of 

this problem until the audit fieldwork. Second, certain disbursements, although initially 

reported, were inadvertently voided and missing in the amended reports. 

This matter was discussed at the exit conference. JEFP representatives were provided 

copies of the Audit staffs bank reconciliations and indicated a willingness to correct the 

misstated cash-on-hand figures. 

Preliminary Audit Report Recommendation 

The Audit staff recommends that, within 60 calendar days of service of this report, JEFP 

amend its most recently filed report to correct the cash-on-hand balance with an 

explanation that the change resulted from a prior period audit adjustment. It is also 

recommended that JEFP reconcile the cash balance of its most recent report to identify 

any subsequent discrepancies that may have affected adjustments recommended by the 

Audit staff. 

I Finding 3, Failure to Itemize Loan Repayments | 

Summary 

The Audit staff identified loan repayments totaling $4,344,469 that were not itemized. 

Although the amounts were reported by JEFP on the Detail Summary Pages and itemized 

on Schedule C (Loans) and Schedule C-1 (Loans and Lines of Credit From Lending 

Institutions), they were not itemized on Schedule B-P (Itemized Disbursements). The 

Audit staff recommends that JEFP file amended reports to itemize the loan repayments. 

Legal Standard 

When to itemize. When a loan repayment is made to any person in any amount, the 

committee must report the: 

Name and address of the payee; and 

Date and amount of payment. 2 U.S.C. §434(b)(5)(D) and 11 CFR 

§104.3(b)(4)(iii). 

Facts and Analjrsis 

The Audit staff identified loan repa3mients totaling $4,344,469 that were not itemized. 

Although JEFP included the aggregate amount of these payments on the detailed 

summary pages, it failed to provide supporting Schedules B-P, itemizing the payments. 

There was no obvious reason why the loan repayments were not itemized. 
15 

This matter was discussed at the exit conference. A JEFP representative stated that 

amendments would be filed to itemize the loan repayments. 

Preliminary Audit Report Recommendation 

The Audit staff recommends that, within 60 calendar days of service of this report, JEFP 

file amended reports itemizing the loan repayments on Schedule B-P, line 27(b). 

I Finding 4. Stale-Dated Checks 

Summary 

The Audit staff identified 202 stale-dated checks totaling $267,529. It is recommended 

that JEFP provide evidence that the checks are not outstanding or make a payment to the 

United States Treasury. 

Legal Standard 

Handling Stale-Dated (Uncashed) Checks. If a conimittee has issued checks that the 

payees (creditors or contributors) have not cashed, the committee must notify the 

Commission of its efforts to locate the payees and encourage them to cash the 

outstanding checks. The committee must also submit a check payable to the United 

States Treasury for the total amount of the outstanding checks. 11 CFR §9038.6. 

Facts and Analsrsis 

The Audit staff identified 202 stale-dated checks totaling $267,529. The checks were 

dated between Febmary 22,2007, and May 21,2008, and had not cleared the bank as of 

Febmary 28,2010. A majority of the stale-dated checks represent refunds of general 

election contributions. 

The Audit staff provided JEFP representatives with a schedule of stale-dated checks at 

the exit conference. In response, JEFP indicated that it contacted a number of 

individuals/vendors and reissued $114,481 in stale-dated checks. 

Based on our review of the bank statements it appears that some of the reissued checks 

may have cleared the bank. However, although requested. JEFP has not provided the 

check numbers of the reissued checks. 

Preliminary Audit Report Recommendation 

The Audit staff recommends that, within 60 calendar days of service of this report. JEFP 

provide: 

• Evidence that the $114.481 in reissued checks have cleared the bank by providing 

copies of the front and back of the negotiated checks along with bank statements; 

and 

• Evidence that the remaining stale-dated checks. $153,048 ($267,529 - $114.481) 

have either been reissued and cleared JEFP's bank, or have been voided because 

no obligation exists. 

Absent such evidence, the Audit staff recommends that JEFP make a payment of 

$267,529 to die United States Treasury.