DB CAPITOL as PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW STRATEGIES 

January 22,20 IS 

SENT VIA EMAIL AND FIRST CLASS MAIL 

Federal Election Commission 

Audit Division 

Mr. Marty Favin 

999 E Street, NW 

Washington, DC 20463 

Audit@fec.gov 

RE: Preliminary Audit Report Gary Johnson 2012, Inc. 

Dear Mr. Favin: 

I am writing on behalf of my client, Gary Johnson 2012, Inc. ("GJ20i2") in response to the 

Preliminary Audit Report of the Audit Division ("PAR"). This letter serves as an interim response 

to the Commission in advance of a full response to the recommendations of the PAR that will be 

delivered on February 6,20 IS, pursuant to our pending request for an extension of time. 

1. Finding Number 1 Net Outstanding Campaign Obligations 

GJ2012 accepts the PAR finding that it did not receive matching fiind payments in excess of its 

entitlement and that no further action is necessary. 

2. Finding Number 2 Amounts Owed to U.S. Treasurv 

A. GJ2012 Did Not Use Matching Funds for Non-Qualifying Campaign Expenses 

Pursuant to 28 U.S.C. § 9038(b), if a candidate uses matching funds to pay for non-qualifying 

campaign expenses, the candidate must repay the United States Treasury an amount equal to the 

amount of matching funds so used. 

The PAR determined date of ineligibility (DOI) was May S, 2012. Between May 2S, 2012 and 

December 31, 2012, GJ2012 received a total of $510,260.98 in matching funds for expenses 

related to the 2012 primary election. In that same period, according to worksheets prepared by the 

Audit Division, $573,379.26 was spent on qualified campaign expenses for the primary. In January 

of 2013, GJ2012 received an additional $121,755.77 in matching funds, for a total of $632,016.75, 

and spent an additional $154,222.58 in qualified campaign expenses for the primary, for a total 

$727,601.84. This total of qualified campaign expenses - which is restricted to the date range 

given, and not inclusive of expenses which the Audit Division has incorrectly labeled as general 

election expenses - exceeds the total matching funds received by $95,585.09. Thus, no matching 

funds were used to pay for non-qualifying campaign expenses, and there is no basis for a 

repayment to the United States Treasury. 

Although the Audit Division's worksheets show a total of $1,220.00 in matching funds used to 

pay for non-qualifying campaign expenses, this is simply an artifact of the first-in-first-out 

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allocation used. At the time of each of the four allegedly non-qualifying payments, there were 

sufficient general election funds in the account to cover expenses as they became due and payable 

to vendors, so late-arriving matching funds would not have been used. The Act does not prohibit 

the use of general election funds to pay for invoices incurred prior to the DOl but billed and payable 

after the DOT in order to ensure vendors receive prompt payment, rather than forcing a 

commercially unreasonable delay on such vendors until matching fund payments are ultimately 

received. To do otherwise would wotic a substantial and commercially umeasonable burden on 

vendors, negatively impacting the market availability of services and their costs. 

GJ2012 is in the process of investigating whether the $7,301 identified as being unallocated 

between primary and general election activities was accidentally unallocated in its reports, but in 

any event, matching funds were not used to pay for those expenses, so there is no obligation to 

repay that amount. 

B. Receipt of Matching Funds 

GJ2012 is in the process of investigating whether the five contributions identified by Audit staff 

as being improperly matched were accidentally attributed to the wrong spouse. If it is determined 

that the eligible portion of the contributions were not improperly attributed, and are ineligible, 

GJ2012 will refund the appropriate amount to the U.S. Treasury. 

^ Finding Number 3 Use of General Election Contributions for Primary Election Expenses 

GJ2012 used an acceptable accounting method in accordance with 11 C.F.R. § 102.9. GJ2012 

designated a separate account for primary election contributions and general election contributions 

received prior to the date of the primary election. 

. While the audit committee reviewed GJ2012's bank statements to determine it did not have the 

appropriate amount of cash on hand, GJ2012 also maintained several other accounts that processed 

contributions and required transferring of money from the processing account to the GJ2012 bank 

account, including Paypal and Fundly. These accounts can take three to five business days before 

a transfer of funds posts to the GJ2012 bank account. 

General election funds ($12,396) were not spent on primary election expenses prior to the DOl 

Prior to the DOT, the PAR provides that the sum of general election contributions was $22,396 

($10,000 of which was deposited to the general election account in September of 2011). GJ2012 

treated the remaining $12,396 as an advance against anticipated matching funds, which the FEC 

notes were not paid to GJ2012 until after the DOl. 

^ Finding Number 4 Reporting of Debts and Obligations 

GJ2012 is in the process of amending and properly disclosing applicable debts. 

The Audit Division recognizes that GJ2012 timely reported $150,000 (invoiced on December 21, 

2012) as a debt on its 2012 Year-End Report. The NSON, Inc. contract does not state that invoices 

- particularly for the bonus - are due upon the triggering event, but rather Article 2.1 of the contract 

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specifically states that invoices are due and payable upon receipt. That a vendor did not invoice a 

particular service in a timely manner does not necessarily create a reportable debt, particularly as 

the campaign has no invoice on which to base such a filing. To the extent this item may be 

reportable as a debt, GJ2012 is discussing with its Senior Advisor the option of waiving his 

personal services to GJ2012 and his bonus commission pursuant to §116.6. To the extent it is a 

debt, applicable to the primary period, it would be a qualifying campaign expense which 

necessarily offsets the net of liabilities prior to the DOI, for which matching funds would be 

available. 

5. Finding Number 5 Extension of Credit bv a Commercial Vendor 

A. Credit Extended was in the Normal Course of Business 

Pursuant to 11 C.F.R. 116.3(c)(l)-(3), NSON extended credit to GJ2012 in NSON's ordinary 

course of business. See Exhibit A Affidavit of Ron Nielson. NSON's contract with GJ2012 was 

offered on the same terms and pursued in the same manner as other NSON clients, political and 

non-political. 

GJ2012 has enclosed redacted NSON contracts with other non-political and political clients of 

NSON which are of similar size and risk as GJ2012. Note, Article 2.1 of such contracts show 

identical billing arrangements used for other NSON clients. See Exhibit B. Contract 892 is a for 

profit client of NSON; Contract 989 is a political committee client of NSON; and Contract 1000 

is a nonprofit client of NSON. Note, Contract 892 is a 2008 version with a 12% interest which 

NSON has since increased to 18% as evidenced by Contract 1000. These standard NSON contract 

provisions, such as billing and debt collection policies and practices, constitute safeguards which 

show that this was normal business practice for NSON. 

The extension of credit conformed to the usual and normal practice in NSON's industry. NSON, 

and competitors of NSON, frequently extend credit to political and nonpolitical clients seeking 

consulting, public relations, advertising, and similar services in anticipation that the services 

performed will help the clients raise money. NSON, and its competitors, would face severe damage 

to its reputation in the industiy if it abruptly stopped providing such services to political and 

nonpolitical clients, although it does retain the right to do so in its contracts. 

NSON followed its established procedures and its past practice in approving the extension of credit 

to GJ2012. NSON regularly invoiced GJ2012 for all services and received consistent weekly 

payments from GJ2012 beginning in 2011 through 2012. 

B. NSON Made Commercially Reasonable Attempts to Collect Outstanding Amounts 

NSON attempted to collect GJ2012 debt. NSON invoiced GJ2012 for interest charges on 

outstanding amounts, as it may do so at its option - the contract specifically saying "may" and not 

"shall" - and both parties intend to leverage the waiver of such fees in the overall resolution of 

outstanding arrears. 

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OB i PAC • CAMPAIGN • NON-PROFIT • POLITICAL LAW 

\ STRATEGIES 

The PAR provides that "on June 18, 2014, GJ2012 submitted several new invoices for interest 

charged by NSON on debts outstanding from January 2013 through June 2014." NSON also issued 

two invoices in October of 2014. See Exhibit C (Invoice #105662; Invoice #105663). 

NSON did not make an improper in-kind contribution to GJ2012. NSON is currently negotiating 

for the acceptance of campaign assets in lieu of amounts owed by GJ2012 based on applicable 

values and may waive interest fees in the ordinary course as is routine in such matters, and where 

the contract says it "may" assess such fees, providing the commercial vendor reasonable flexibility 

in its dealings with any applicable client, whether political or not. As a part of commercially 

reasonable attempts to collect outstanding amoimts owed to NSON, NSON has exercised 

discretion and waived fmance charges in the past for other clients, including nonpolitical. See 

Exhibit A Affidavit of Ron Nielson. 

Conclusion 

Pending the approval of GJ2012's request for an extension of time in which to submit this 

response, GJ2012 reserves the right, and intends to supplement or amend this response by February 

6, 2015, after it has had more adequate time to review the PAR findings and relevant data and 

materials. 

Sincerely, 

/s/ 

Dan Backer 

dbacker@dbcapitolstrategies.com 

(202)-210-5431 Direct 

Christina Sirois 

csirois@dbcapitolstrategies.com 

CC: mfavin@fec.gov 

creminsky@fec.gov 

203 South Union Street • Suite 300 

Aiexandrfa, VA 22314 

202-2IO-5431(onice) 202-478-0750(rax) 

virww.DBCapltalStrategies.com 
DB CAPITOL 

STRATEGIES > PAC« CAMPAIGN • NON-PROFIT • POLiriCAL LAW 

February 6,2015 

SENT VIA EMAIL AND FIRST CLASS MAIL 

Federal Election Commission 

Audit Division 

Mr. Marty Favin 

999 B Street, NW 

Washington, DC 20463 

Audit@fec.gov 

RE: Supplement Response to Preliminary Audit Report Gary Johnson 2012, Inc. 

Dear Mr. Favin: 

I am writing on behalf of my client, Gary Johnson 2012, Inc. ("GJ2012") to supplement GJ2012's 

initial response to the Preliminary Audit Report of the Audit Division ("PAR"). 

1, Finding Number 1 Net Outstanding Camoaien Obligations 

GJ2012 has no further supplement to finding number 1. 

2. Finding Number 2 Amounts Owed to U.S. Treasurv 

In response to a question from the Audit Division related to the calculations in GJ2012's initial 

response to the PAR, the $7301 figure referenced in GJ2012's initial response is from the PAR, at top 

of page 14. The remaining calculations used by GJ2012 in the response to the PAR were found in 

either the "Calculation of unqualified expenses" spreadsheet that the Audit Division provided GJ2012, 

or in GJ2012's 2013 April quarterly report. 

GJ2012 has identified a number of disbursements incorrectly categorized as non-qualifying expenses, 

and invoices for primary expenses that were not previously reported as debts. These include the 

$300,000.00 "Win Bonus" due to NSON/Ron Nielson (pursuant to the finding of the Audit Division 

see Finding 4), and total to $548,073.41. See Attached New Debts and Expenses Spreadsheet. 

By decreasing the non-qualifying expenses total given in the PAR, the effective matching fimds cutoff date is moved forward, and the amount to be repaid to the U.S. Treasury is reduced. If only the 

$300,000.00 is accounted for, the cut-off date is moved to 10/4/12, and the amount to be repaid is 

reduced to not more than $110,941.76. If all new debts and expenses are accounted for, the cut-off date 

is moved to 10/22/12, and the amount to be repaid is reduced to not more than $33,930.70. See Attached 

Matching Funds Cut-Off Date Calculation Spreadsheet. 

1 Finding Number 3 Use of General Election Contributions for Primary Election Expenses 

GJ2012 has no further supplement to finding number 3. 

^ Finding Number 4 Renorting of Debts and Obligations 

The PAR claims that GJ2012 did not report debts to six vendors; however, GJ2012 properly reported 

the majority of all debts to those vendors. 

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The Audit Division's Debt Review spreadsheet claims GJ2012 did not report certain debts to Chris 

Thrasher and Wagon Works, LLC, but is inconsistent in the amount of the alleged unreported debt. In 

one place, the Audit Division indicates that GJ2012 did not report debts of $500.00 and $2,000.00, and 

in another instance that GJ2012 did report the same $2,000.00 but not the $500.00. GJ2012 in fact 

properly reported both debts totaling $2,500: $2,000.00, inadvertently dated 10/30/12 instead of 

10/31/12, and $500.00 on 11/30/12. 

The Debt Review spreadsheet claims GJ20I2 failed to report debts to EH2 Consulting in the amount 

of $25,158.41. Upon review of all invoices and payments, including unnecessary reporting of certain 

invoices as debt that need not have been reported at that time as they had not yet matured, and receipt 

of additional, previously unissued invoices, from the vendor, GJ2012 has amended the relevant reports. 

The Debt Review spreadsheet claims GJ2012 failed to report debts to Daines Goodwin in the amount 

of $7,679.70. GJ2012 reported all debts to this vendor and the relevant payments. 

Further, in calculating the alleged unreported debt, the Debt Review spreadsheet does not take into 

account a disbursement made to Daines Goodwin for $5,275.00 in July, 2012. GJ2012 wrote two 

checks to Daines Goodwin in that same amount in July, and properly reported each of the checks, but 

as four separate disbursements totaling $10,550.00, that paid three separate invoices reported as debts. 

The Debt Review spreadsheet only shows two of those disbursements, and has the wrong date for one 

of the disbursements. GJ2012's FEC filings report two additional payments on 7/17/12, one for 

$840.00, and one for $4,435.00 (note that a separate check for $4,435.00 was written in August). These 

cailculations show that GJ2012 reported all debts to Daines Goodwin and the relevant payments. 

The Debt Review spreadsheet claims GJ2012 frilled to report debts to Charles Frohman in the amount 

of $6,500.00. However, upon review, only $2,000.00 of that amount may have been inadvertently 

omitted from being reported. First, the FEC arbitrarily determined that GJ2012 had an outstanding 

invoice to Charles Frohman in the amount of $2000.00 for September, 2012. However, no payment 

was due for September 2012, nor invoiced for, based on the vendor's actual provision of services, 

irrespective of the services envisioned in the contract. In addition, the Debt Review spreadsheet seems 

to improperly account for an invoice dated 12/27/12 twice, thereby incorrectly resulting in the Ending 

of an additional $2000.00 in alleged unreported debt. GJ2012 reported the $500.00 invoice dated 

11/11/12 as a debt on 11/30/12, but accidentally attributed the debt to Chris Thrasher, who was also 

owed a debt of the same amount on the same date. GJ2012 has corrected this error in amendments to 

the relevant report. 

The Debt Review spreadsheet claims GJ2012 failed to report debts to Law Office of Douglas C Herbert 

in the amount of $32,546.75. However, GJ2012 timely reported $33,789.62 in debts to Law Office of 

Douglas C Herbert: $16,313.76 on 5/31/12, and $17,475.86 on 7/1/12. While a portion may be reported 

later than the invoice date, the invoices were not necessarily received from the vendor on the actual 

invoice date, and the GJ2012 believes it properly reported these debts when the reporting became 

required. 

The Debt Review spreadsheet claims GJ2012 failed to report debts to Jonathan Bydlak in the amount 

of $11,109.80, and over-reported debts by $9,943.13; resulting in a difference of $1,166.67 of 

unreported debt. However, GJ2012 has already reported the full amount of all invoices as debts: 

$57,188.96 on 6/30/11, $6,000.27 on 7/1/11, $4,740.69 on 8/1/11, $6,846.55 on 9/1/11, and $3,692.88 

on 10/14/11. While a portion may be reported later than the invoice date, the invoices were not 

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necessarily received from the vendor on the actual invoice date, and the GJ2012 believes it properly 

reported these debts when the reporting became required. 

Deferring to the Audit stafPs recommendation that the committee treat the $300,000.00 primary "Win 

Bonus" due to NSON/Ron Nielson as a Primary expenditure, GJ2012 has amended its 2012 June 

Monthly Report to report the remaining $150,000.00 not previously reported, despite not being 

invoiced for at such time, and has amended the date the other $150,000.00 obligation was incurred to 

reflect the guidance of the Audit staff and, 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. 

5. Finding Number 5 Extension of Credit bv a Commercial Vendor 

NSON extended credit to GJ2012 in NSON's ordinary course of business and NSON has made 

commercially reasonable attempts to collect outstanding amounts. GJ2012 has no further supplement 

to finding number 5. 

Conclusion 

GJ2012 request the Audit Division revise its findings to determine that: 

1. GJ2012 owes not more than $33,930.70, subject to any additional applicable deductions, to the 

US Treasury; 

2. GJ2012 did not use general election contributions for primary expenses in violation of the 

FECA; 

3. GJ2012 satisfactorily reported the majority, if not all, of its debts and obligations and any 

reporting errors were de minimis; and 

4. NSON extended credit to GJ2012 in NSON's ordinary course of business and NSON has and 

continues to make commercially reasonable attempts to collect outstanding amounts pending 

the resolution of this audit matter. 

Please contact me if you have any questions about this supplement or the initial response. 

Sincerely, 

/s/ 

Dan Backer 

dbacker@dbcapitolstrategies.com 

(202)-210-5431 Direct 

Christina Sirois 

csirois@dbcapitolstrategies.com 

CC: mfavin@fec.gov 

creminsky@fec.gov 

203 South Union Street • Suite 300 

Alexandria, VA 22314 

202-210-S431(onice) 202-478-07S0(rax) 

www.DBCapltalStrategles.aim