Draft Final Audit Report of the 

Audit Division 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 fiinds 

received, whether the 

campaign used the 

matching funds in 

accordance with the law, 

whether the candidate 

entitled to additional 

matching funds, 

whether the campaign 

otherwise cmpjdj 

thelimit^biC ' 

prohibi^is, and 

discldsffi^gquirements 

of the elec^oii l.iw. 

Future AcSm 

The Commission may 

initiate an enforceirx-ni 

action, at a later time,^ 

with respect to any of the 

matters discussed in this 

report. 

About the Campaign (p. 

Gary Johnson 2012, Inc is the prj^pai cknpaign committee 

for Gary Johnson, a candidati 

nomination for the office of 

The Committee is headc 

more information, < 

Organization, p. ii. 

|Libertarian Party 

sidi^iBf the United States. 

in Slli Lake City. Utah. For 

: on the Cuinpaign 

Financial Activity (p. 4) 

itions from liiil^duals 

i:ii! l-uiids Received 

Operati^Expendif 

Fundraisi% Disbursements 

Exempt LeMT and Accounting 

ursements 

$2,249,318 

510,261 

$ 2,759,579 

$ 2,534,497 

153,019 

28,130 

$ 2,715,646 

Findi^s and Recommendations (p. 5) 

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) 

• Extension of Credit by a Commercial Vendor (Finding 5) 

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

Audit Division on 

Gary Johnson 2012, Inc 

(April 1, 2011 - November 30, 2014) 

V 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 

Scope of Audit 

Inventory of Campaign Records 

Committee Structure 

Part II. Overview of Campaign 

Campaign Organization 

Overview of Financial Activity 

Part III. Summaries 

Findings and Recommendations 

Amounts Owed to the United States Treasury f 

Part IV. Findings and 

Finding 1. Net Outstanding Camj 

Finding 2. Amounts Owed to the 

Finding 3. Use of General Election 

Expenses 

Finding 4. Repo: 

Findings. Exi 

r r 

>mmendations 

Obligations 

|;axury 

itriiniiiciiis lur Prupary Election 

and Oblif 

it by a ( 

ions ^ 

Vendor 

3 

4 

5 

7 

8 

11 

18 

20 

22 
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 Conunission (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 andj 

committees who received [matching] payments under section 

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

Regulations state that the Commission may conduct 

time to time as it deems necessary. 

Scope of Audit 

This audit examined original and amended re^ort« tiled by 

notification letter was sent on December 3,2012^. 1 he 

filings of the 2012 30 Day Post-General and Year-! 

covered by this audit: 

1. the campaign's compliance with liM^;|gns for contribl 

Iso, Section 

Commission's 

ii:iicins and audits from 

2. the campaign's compliance with the 

3. the campaign's compliance with the i^hibij 

contributions; 

4. the disclosure of received; 

5. the disclosure dishursei^ys, debts 

6. the consistency bciwceii refiorud figures 

7. the accuracy of the ^iiicn-ciii of Net Oui.Ciii 

8. the ca^i^^^toii:|iliii!i(v witli spending limits; 

9. the^ceTmpletene^^H' records: iiiid 

J2012 before t^iiudit 

so examined^e original 

s. The following areas were 

i loans; 

- candidWcontributions and loans; 

; prohibited 

records; 

ing Campaign Obligations; 

npaign operaliiuis neces' review. 

Inventi 

The Audit 

audit fieldwork. 

immediately. 

>f Campaign Records 

ginely conducts an inventory of campaign records before it begins 

i were materially complete and fieldwork commenced 

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 coimection with the primary election. 
Part II 

Overview of Campaign 

Campaign Organization 

Important Dates 

• Date of Registration April 22.2011 

• Date of Ineligibility^ May 5.2012 

• Audit Coverage April 1,201LMpvember 30.2014" 

Headquarters Salt Lake 

Bank Information 

• Bank Depositories One> • 

• Bank Accounts Oil J primary checking a£^jni and one general 

K checking ai^imt 

Treasurer .... ^ r 

• Treasurer When Audit Was Conducted Chet ®i^lFwin 

• Treasurer During Period Covered byi!\iidii 

•tte 

ElizabetE^pworth (4/22/11 -1/4/12) 

. Chet GoodvV^iii (1 /.S/12 - Present) 

Management Information -

• Attended Commission Campaign Financ^t 

Seminar %,• 

Who Handled Atci»i,:j|ii:ig aiiil^ .Paid Staff 

A threshold submission was submittcfd 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 (DOI). However, GJ2012 submitted contributions for 

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

primary election contributions received after DOI for matching as well. 

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

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

(Audited Amounts) 

Cash-on-hand @ April 1,2011 $0 

Receipts 

o Contributions from Individuals^ 2,249,318 

0 Matching Funds Received^ j510,261 

Total Receipts jKS9.579 

Disbursements jf" 

o Operating Expenditures ^>0" 2,534.497 

o Fundraising Disbursements ^ '% ''^^3,019 

o Exempt Legal and Accounting 

Disbursements # 28,im.. 

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 5,2012), GJ2012 had received no matching funds. GJ2012 received 6 payments 

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

Summaries 

Findings and Recommendations 

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 ^j^i^eive matching fund 

payments in excess of his entitlement. 

provided 

Its, and did not 

the 

In response to the Preliminary Audit Report recoi 

additional bank statements and invoices to show 

dispute the Net Outstanding Campaign Obligations 

Preliminary Audit Report. (For more detail, see p. K.) 

Finding 2. Amounts Owed to the 1g#rreasuTy 

During audit fieldwork, the Audit stages review of receipts and disbursements 

determined that primary election fiina^crc spent on n(^y':.:'.ified campaign expenses 

and that matching funds were received for coh:r:bi:iions thi.- jic^hot eligible to be 

matched. 

In response to the Prelim^l^ y Audit Re 

additional informatiogand disf: 

find GJ2012's arpum^s comp 

determination that $333^d is j 

seep. 11.) 

Fine 

immeiKjaiinn, GJ2012 provided 

s conclusion. Audit staff does not 

ids that the Commission make a 

States Treasury. (For more detail. 

3. Us« Election Contributions for 

.Election Ezperiiies 

During au^|eldwork, tlic .Audit staffs review of GJ2012's receipts and disbursements 

during the pr^^I period indicated that GJ2012 spent $12,396 in general election 

receipts on priim^^lectinii expenses prior to the Candidate's DOI. 

In response to the Pr|l!'minary 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 notes that short-term advances against matdiing funds 

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

funds amounts. (For more detail, s% p. 18.) 

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. (For more detail, see p. 20.) 

Finding 5. 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 extendiag credit beyond its 

normal course of business and not making commercially reasc^^^^tempts to collect 

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

In response to the Preliminary Audit Report, GJ2012 JWE ited .iii i^yavit from the 

proprietor of NSON and redacted contracts to dispu^^ ^dit staff^ai;i!i-*>tion that 

NSON made a prohibited contribution to GJ201^^owi r, neither cMo 12 nor the 

vendor presented any documentation to dem^i^riiic thai clients were to the 

same billing practices, or that GJ2012 was regularly j^d g^^billed for s^ces 

rendered. (For more detail, see p. 22.) 

^ 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. 
Summary of Amounts Owed to the United 

States Treasury 

• Finding 2. A. 

(p. 13) 

Payment of Non-Qualified Expenses 

with Primary Election Funds 

$ 332,191 

• Finding 2.B. 

(p. 15) 

Receipt of Matching Funds Based 

on Ineligible Contributions 

1,250 

Total Due U.S. Treasury A $333/141 
Part IV 

Findings and Recommendations 

Finding 1. Net Outstanding Campaign Obligations 

Summaxy 

The Audit staffs teview 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 

additional bank statements and invoices to show actual 

dispute the Net Outstanding Campaign Obligations ^ 

Preliminary Audit Report. ^ 

12 provided 

costs, and did not 

Tiled in the 

Legal Standard „• 

A. Net Outstanding Campaign Obligations (NOCOV^ithtn IS days aoa the 

candidate's date of ineligibility (see definition below)^1^^imdidate must submit a 

statement of "net outstanding campaign n'nligations." ThW^Uiicment must contain, 

among other things: ^ 

• The total of all committee assetsIhcluciing lash on ha^d'T amounts owed to the 

committee and capital assets listea4t the^iliilr mar]^ value; 

• The total of all pjl^iuling obligatio^ror quali^^ campaign expenses; and 

• An estimate^lfmecessrii \ ^inding-doi%i costs. 11 CFR §9034.S(a). 

B. Date of Ineligibility^ Tlic diiic of iiu-iii'lhlll^is whichever of the following dates 

occurs first:... 

liiy t):i ulft# th^aiididate cei^s to be active in more than one state; 

! 30th day ing itic^mnd consecutive primary in whidi the candidate 

iTurives less than 10 perce^^the popular vote; 

• The end of the mat^ig payment period, which is generally the day when the 

party^tonates its^didate for the general election; or 

• In the c^^^f a cupdate whose party does not make its selection at a national 

conventioh^^l^day of the last national convention held by a major party in 

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

C. Definition ofNon-Qualified 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 throug^h the last day of the candidate's eligibility under 11 CFR 

§9033.5; 

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

o Not incurred or paid in violation of any federd 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 campai^l^^erminating political 

activity. 11 CFR §9034.4(a)(3). ^ 

E. Entitlement to Matching Payments after Date of 

ineligibility (see above), a candidate has net outsi 

urider 11 CFR §9034.5, that candidate may 

matchable contributions received and deposii 

Presidential election year provided that he or 

on the day when the matching payments are 

F. Winding Down Costs. A 

election may receive and use matching 

of the candidate's withdrawal from the 

party's nominating convention, if the 

A primary election 

after the general eli 

regardless of wh 

11 CFR §9034.11(d). 

Facts ana 

f, on the date of 

; as defined 

^ lentsfor 

; December 3'i 

iitstanding ca^aign debts 

334.1(b). 

runs in 1 

ling any i 

receives ] 

candidate^ho does not run in the general 

notifying ihc ^mmission in writing 

'^r iinminauon or after the date of the 

not u rhdrawn before the convention. 

elc;.':on must wait until 31 days 

ing fiinids for winding down costs, 

funds for the general election. 

A. 

The Can 

GJ2012's 

down costs 

appears on the folll 

jbili^ (DO!) was May 5,2012. The Audit staff reviewed 

igh November 30,2014, analyzed estimated winding 

Statement of Net Outstanding Campaign Obligations that 
10 

Gary Johnson 2012, Inc 

Statement of Net Outstanding Campaign Obiigations 

As of May 5,2012 

Prepared February 10,201S 

Assets 

Cash in bank 

Total Assets 

Liabiiities 

Accounts Payable (AP) for Qualified Campaign 

Expenses as of S/S/12 

AP (Primary Account) Billed Post-DOI 

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 Liabiiities ^ 

Net Outstanding Campaign Obiigations 

(Deficit) as of May 5,2012 . 

$ (10,856)® 

$ (10,856) 

(22,8 

(112,268) ^ 

"^,117,471) 

$(2,128,327) 

ig down period began 31 days after 

Footnotes to NOCO Statement; 

[a] The General election was held on Novem^i^ 6, 

the General electionjgofp^mber 7,2012? 

[b] Estimated wlnding^bvm'^iap^will be compS^ to actual winding down costs and adjusted 

accordingly. % 

Shown below are adjusi 

2012 throughiaanuar^ 8, 

iyi^after the Candidate's DOI on May 5, 

received its last matching fimd payment. 

N^t0.ii'standing C^ijiaign OhIi^|^ons (Deficit) as of May 5, $(2,128,327) 

Less: Contributions Reeved (May 6,2012 to January 8, 1,216,661 

Less: Matchlffi^ds^^ceived through January 8,2013 632,017 

Remaining Net ^^anding Campaign Obligations 

(Deflcit) as of January 8,2013® 

$ (279,649) 

As presented above, the Candidate has not received matching fimds 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 page 16 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 Finding S for additional 

detail. 
11 

B. Preliminary Audit Report 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"*. 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 ow^^n debts incurred in 

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

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

primary election. The Audit staff reviewed this docume^'iion revised the NOCO 

accordingly. As a result of this additional documentatioi^ie re^^gfflOCO indicated 

that the Candidate did not receive matching funds ppb^^f his edSillcinent. 

The Audit staff recorrunended that GJ2012 

required in connection with any part of the 

additional corrunents. 

adjustments iPbclictes are 

provide anj^olher 

C. Committee Response to ] 

In response to the F^iminary Audit Rcpcm 

NOCO calculations contained on the 

additional bank statements and invoices 

down costs as well as accounts pi 

These expenses havj|^n incorporated into 

$279,649 as of No!''®?^ 30, 201*4. The 

not receive matching f 

iry Audit Report 

30,20lH. Thei 

S m ex. c-" £•: :..s enl 

tioii.^^^12 did not dispute the 

<iiuii Repo^however, provided 

iciiial aifflfdditional estimated winding 

3le for qi^fied campaign expenses. 

; revised NOCO that reflects a deficit of 

30 indicates that the Candidate did 

nent 11 

Find^ 2. 

Sum 

During aui 

determined 

and that mai 

matched. 

to the U.S. Treasury 

udit staff's review of GJ2012's receipts and disbursements 

ion funds were spent on non-qualified campaign expenses 

received for contributions that were not eligible to be 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional information, and disputed the Audit staff's conclusion. Audit staff does not 

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), dated 

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 Finding 5 for additional 

detail. 
12 

find GJ2012's arguments compelling, and recommends that the Commission make a 

determination 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 begiiming on the day the individual becomes a candidate and 

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

§9033.5; 

Made in connection with the candidate's 

Not incurred or paid in violation of any 

where the expense was incurred or paid. 

• An expense incurred for the purpose of 

become a candidate, if that individual su) 

regardless of when that expense is pi 

• An expense associated widi winding do 

activity. 11 CFR §9034.4(a)(3). 

o 

o 

B. Definition of Non-Qualifled 

expense is any expense that is not incl 

expense (see above). These include, for 

Excessive expendi 

limitations 

expense. 

General eli 

costs pursuant to 

nomination; and 

law of the state 

12.9. 

hethcr an individual should 

itly becomes a can-l c'iate, 

34.4. ^ 

and termiti^g political 

Anex] 

§9035 

led campaign 

alified campaign 

not llhiited to: 

'excess of any of the 

Tdered a qualiEed campaign 

^ ciiiiipaign exp 

' d.iiCiiOf ineligibilii 

of 

itures. Except for winding down 

certain convention expenses 

y expenses incurred after a candidate's 

led under 11 CFR §9033.5, are not qualified 

^ any expenses incurred before the candidate's 

and services to be received after the candidate's date 

, services, or facilities used to benefit the 

on campaign, are not qualified campaign expenses. 

Civil or (^^ml p^alties. Civil or criminal penalties paid pursuant to the Federal 

Election Car:^^^ Act are not qualified campaign expenses and c^ot be 

defrayed fion^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. 
13 

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 Aat 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-qual^ied 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 campaig:. expenses. 26 U.S.C. 

§9038(b)(2)(A). Jr \ 

D. Seeking Repayment for Non-QualiHed Campaign Emens^ In seeking repayment 

for non-qualified campaign expenses from committees tM|hav^cccivcd matching fimd 

payments after the candidate's date of ineligibility, Ji^^i^issio:i will leview 

committee expenditures to determine at what pomt^mmittee account- iio^nger contain 

matching funds. In doing this, the Commissipri^^l revietli^mmittee er^f^^dres hom 

the date of the last matching funds payment to vi^h the ci^laidate was entmra, 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 Elec^f^eriod. A primary 

election candidate who runs in the gener|kek-.::-.!:.. rcgaidless^whether the candidate 

receives public funds for the general elec^b,^^t wait 31 days after the general 

election before using ^^^^lu-liing funds f^^nding d(;wn costs related to the primary 

election. No expensk^curicd ^ a primary%ection candidate who runs in the general 

election prior to,3J.*^^^ter tl^eneral elec^jiLshall be considered primary winding 

down costs. 11 CFR §9^y l( 

F. How ] 

When<Candidate inl 

Unit^'^^gs Treasury 1 

qualified ^t^pign ex( 

surplus that the samel 

candidate from fE^giatchy 

candidate's accouf^ 

Amount for Non-Qualified Campaign Expenses 

If a candidate must make a repayment to the 

se hiipfher campaign used matching funds to pay for nonthe {mount of the repayment must equal that portion of the 

tio to the total surplus that the total amount received by the 

; payment account bears to the total deposits made to the 

§9038.2(b)(2)(iii). 

G. Bases for RepaylihenL The Cbmmission 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 
14 

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 Anal3rsis 

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

1. Facts 

During an examination of disbursement records, the Audit staff identified 

$1,199,701*^ in disbursements for general election expense|^^^ith primary 

election funds. Of this amount, disbursements totaling S 1^^2.400 occurred during 

the period between the Candidate's DOI, May 5,201^^^S|^ays after the general 

election, December 7,2012. During this period, exp^es ironed are not considered 

primary winding down costs. Since these expen^g^not relaud lo the primary 

election of the Candidate, they are considere^^^-qualified campt^ k^penses. 

f 

In the post-election wind-down period, WKm^^^d-doijpCTpenses musi .he allocated 

between the primary and general election cam^pns. $7,301 was spentSince these 

amounts were not allocated betw^ campaigns, ihc.^^e also non-qualified 

expenses. Additionally, the accoiMj^ staff for GJ2^12 i:aied that expenses 

identified by themselves, or by NS^^^^meral elect inn cienSnses were paid from 

the general account, and expenses idl^tif^^fenmary e^mises were paid fixim the 

primary account. Of the expenses ide^tifi^^^^Uur as non-qualified expenses, 

expenses totaling $j[^^i||836 were paia%» of the g^eral account. 

After the CandiSi^^DOI. Cy2012 contini^^ raise funds to pay off the debt 

incurred during the^toaiv ^dcctinii. as per^ted by law. Approximately $1.2 

million iri.prip^te con^mir.iciiis dcsn^agtnor the primary election were deposited 

into ell^mn account, and were used to pay general election 

Auditl^p^te^^^e private contributions designated for the primary 

I using the siu^c.KCuli^s as in the Statement of Reasons In Support of 

FinaflpEnnination of 1-iititlei^t in the Matter of Governor Gary Johnson (LRA 

#905), oi^J^ovember 14,2013. 

To determine wiM^g^eral election expenses were paid using the contributions 

designated for tl^fimary election. Audit staff followed the following procedures: 

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

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

Governor 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 che^ dates 

The initial amount of non-qualified expenses was subsequently reduced to S1,194,42S 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. 
15 

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

disbursements from the bank statements that were not in GJ2012's database 

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

followed for Ae review of the general election account. 

3. For each day analyz^, Audit staff fust sununed the three different types of 

receipts separately (primary contributions, general contributions and receipts 

of matching funds from the U.S. Treasury). Contributions were consider^ 

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, gener^^atching funds. 

4. The last day that any primary election contributions,^Eraii^ed for matching 

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

Therefore, the calculation of non-qualified cm ^^aign expenses from that 

account ended on that date. _ 

Following these procedures resulted in the mol^favorable repa) f^culation for 

GJ2012. 

Pursuant to 11 CFR §9038.2(b)(2)(iii)(B), 

all of GJ2012's accounts would continue until no 

the accounts. This "zero-out date' 

completely and accurately calcu 

matting funds, Audit staff needed i 

received so that the amounts received 

accurately 

contribution detciil 

requested banlf's;a 

after the November 

from comoiatle^ that 

dejtdmine if these 

1 on Fel 

ti-qualifii 

rrom (jJ 

..^ocumentatic.^ 

after Bomber 31,20 

last contn^tion submit 

Thus, the Afi 

both accounts; 

staff] 

L-qualified expenses from 

funds were left in any of 

2014. In order to 

were paid with 

about contributions 

. priniiii'v and general elections could be 

ion was^iquested, GJ2012 provided no 

2012. hi addition, although Audit staff 

statem^t^or the general account were received 

of information is regularly requested 

matching funds. Without these bank 

It know what expenditures have been made and cannot 

ituTg^were for the primary or general election. Given the 

.udit sMf was unable to v^y the receipts or expenditures 

However, the Audit staff was able to verify the date the 

for matching funds was deposited to the general account. 

December 20,2012, as the cutoff date for examining the 

^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'®. 

M Audit staffs estimate of the additional amount of possible non-qualified expenses is $16,000, which 

would result in an additional repayment amount of about $4,450. 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 ($303,751/$ 1,088,S09=.279053). 
16 

2. Preliminary Audit Report 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 demonstrate it did not 

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

necessary. It was further recommended 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 

qualified campaign expenses exceeded Ae amount of 

$9S,S85, ".. .no matching funds were used to pay for 

expenses..." In addition, GJ2012 claims that certai 

totaling $1,220 identified by the Audit staff 

election funds. GJ2012 also states that expea^ totaling $7,301 idui.'.'i >1 as being 

unallocated between primary and generalji^iivitcs wefl^ot paid witi i^liihg funds 

but solely with general election funds. ^ 

that since 

funds received by 

campaign 

Icii campaign expenses 

ely Willi available general 

In each of the instances noted 

of private contributions received 

campaign obligations after the Cani 

contributions received by an individi 

and all matching payme^ received b 

qualified campai 

amount of privi 

qualified cam| 

to indicate that mai 

20,201 ^ 

gener^'i 

su^^t to repaymu 

g, GJ2012's l alcuicii 1(111 fails to apply the amount 

ilied towards riMiiaining net outstanding 

1. Pursuam o Q CFR §9034.4,".. .all 

he q,^e becomes a candidate 

iej^diiiat^^ll be used only to defiray 

ThereF^ the Au^^taff maintains that both Ae 

and the a^punt of matching funds are applied to 

According ti^e Audit staff, this calculation continues 

uciv pa: I (j[^J2012's account balance until Febmary 

I IK; Idcijutii-d non-qualified campaign expenses for the 

h part, with primary election matching funds and are 

GJ20l^^sponse al.s() refereifces newly discovered debts and other debts related to 

the Prim^^tivity, in^ding a $300,000" win bonus owed to NSON, and states 

that these dl^^ould^ included in the calculation. In doing so, GJ2012 asserts 

that this woul^Swa^ the date on which Federal matching funds were no longer in 

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

December 20,2012 (as explained in footnote 12) is $333,307. 

See footnote 16. 

" 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). 
17 

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 lo be(,considered as a 

qualified campaign expense and accordingly, the Audit tiaff has r^uced the total 

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

The Audit stafi recommends that the Commissi! 

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

B. Receipt of Matching Funds Based on Ini 

1. Facts 

During an examination of receipts^ 

contributions designated to the ge 

for matching funds. These contribut 

election funds. The amount of mat 

contributions was! 

a deterrn I nation that 

lit fieldwork. ili^^dit staff identified five 

1 totaling that were submitted 

i>le t^e matched for primary 

hij^or these ineligible 

2. Freliminai^ .Xii^t Report Recommenf 

The Audit stafi presiih^tcd :lii^ matter to GJ^l2 representatives at the exit conference 

along wittoaeh^ules (ictailing GJ2012 representatives did not comment 

on th|j,^^in^1 .-ic A-.nlii ^ff recommended that GJ2012 show that the 

^utions were iioi£en^ac=cj|ion contributions or provide any other additional 

^ it deemed^^ssar: I' was further recommended that, absent such 

evldens^j^e Audit st^^ouldtnake a reconunendation that the Commission make a 

determin^^ that $1,2|P is repayable to the U.S. Treasury. 

3. Committee l^ppiise to Preliminary Audit Report 

In response to th^ineliminary 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. 

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

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

funds. 
18 

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

is repayable to the U.S. Treasury. 

Finding 3. Use of General Election Contributions for 

Primary Election Expenses 

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 ] 

!hc use of general 

nee agai^t anticipated 

;funds 

matching 

In response to the Preliminary Audit Report, GJ2012 stati 

election receipts for primary election expenses was an i 

matching funds. The Audit staff notes that short-t 

must come from a qualified financial institution,; 

funds amounts. 

Legal Standard 

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

(l)If the candidate, or his or her auth&ri/cd committee(>), >^ives contributions that are 

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

prior to the date of the primary election,%ieh caiicMate or such eommitteeCs) shall use an 

acceptable accounting method to distingimh betM^^j^tributions received for the 

primary election and co^tj^^bns receive^&^e go^prelection. Acceptable 

accounting methods jn^M^^^re not limn^ to: 

(i) The designationri^eparate founts for el|^ election, caucus or convention; or 

(ii) The establishrherif^ separa^books and re^j^s for each election. 

IS. , an authorized 

records^iiti do 

as at all time*: equal 

Facts and 

that, prior to the primary election, recorded cashs of the sum of general election contributions 

ion disbursements made. 11 CFR §102.9(e). 

A. Facts 

During audit fieldwql^, 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). Conunittees are not permitted 

to spend funds 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 fimds should be held in reserve and not spent for primary 

election purposes. 
19 

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 

determined the private contributions designated for the general 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 generd 

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 ^tributions designated 

to the general election that were spent on primary election expg^^Qor to the primary 

election date. These expenditures were identified as primar> d^tion expenses as they 

were bank fees incurred prior to the Candidate's DOI an^ayinctoon invoices 

submitted for various services incurred in cormection wimhe Cm^^te's campaign for 

nomination. In addition, no invoices for any servi(%^^iQi^i&ed in coii^uk iion with the 

general election were received prior to the paymo^f these expenses. 

B. Preliminary Audit Report & Audit Divisioifliccom: 

The Audit staff presented this matter to GJ2012 rqnesm 

provided schedules detailing the payq^ts made usin^ 

election expenses prior to the candid^^^lQI for the 

representatives did not comment on th: 

ion 

ives at the exit conference and 

election funds for primary 

d tAcle. GJ2012 

The Audit staff reconunended that GJ201i 

general election contrib.r.:i"> -A jre not 

accordance with 11 §102.9, docu 

accounting method^as w-td. A^ent such a u 

additional comments ii cinisidcrod iiccessarv u i 

L-iimciitation to demonstrate that 

id primary election activity. In 

1 should'demonstrate that an acceptable 

stration, GJ2012 was to provide any 

''respect to this matter. 

C. CommiHtvv Response to 

In respite to the Picliin 

$12i3^^s treated as 

election H^butions to 

iminary ^dit Report 

irt recommendation, GJ2012 stated that the 

Inst anticipated matching fimds from the general 

election. 

To the extent tHl^|^2012 Is characterizing the advance of general election fimds as a 

loan to the primaii^^Emy^f, it is noted that regulations specify that such loans or 

advances must come^ram 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 matting 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 diat there were separate accounts for primary and general election 
20 

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

this report, in practice, GJ2012 d^osited nearly all receipts before DOI in its designated 

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

GJ2012 further stated that Audit staff based 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 inunediately. 

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 of contribution rather than the^ate of deposit. 

Finding 4. Reporting of Debts and 

indicated that 

Ic D-P (Debts 

Summary 

During audit fieldwork, the Audit staffs review disbi 

debts from seven vendors totaling $407,455 wcic not diseased on S 

and Obligations), as required. ^ f 

In response to the Preliminary Audit Report, GJ20li%hmitted additional invoices for 

debts to two vendors that were not pria^sly disclosed lu .Audit staff. This resulted in a 

total of $447,567 in debts owed to nin^^d.ors that were iiui disctosed on Schedule D-P 

as required. GJ2012 amended its reporn^ton^cruilly correc^^p^isclosure of debts and 

obligations on Schedule D-P. % 

Legal Standard 

A. Continuous 

and nature of outsi 

52 U.S.C. 130104(b)(8) 

104.11(a).^. 

£ 

B. Sjejm^te Schedui 

owdSd b^^ to the 

conditions^lder which 

11CFR§1 

A po%cal committee must disclose the amount 

d obligations^til those debts are extinguished. 

S r. 4348>)(8)) and 11 CFR §§ 104.3(d) and 

ittee must file separate schedules for debts 

statement explaining the circumstances and 

lebt and obligation was incurred or extinguished. 

C. Itemizing DebHH^d^Gbiigations. 

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

less must be reported on the next regularly sdieduled 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). 
21 

Facts and Anal]rsis 

A. Facts 

During audit tieidwork, 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 G]20I2's vendors tot^g $407,455 that were 

not reported on Schedule D-P as required. Of these debts, SSQiQ^ilVjas owed to NSON 

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

for the Presidential general election. This bonus was inciK;i;t:. n,.-%pontract, as of the date 

of nomination. May 4,2012, and should have been 

report, covering the time period from May 1,2012 

It should be noted that GJ2012 was invoiced 

December 21,2012, and reported it on the 20l2 

staff maintains the debts should have been reported ns 

on the date and terms of the contract.%jnie remaining 

for smaller amounts to all six vendorsMifentified by the Ai 

2 June Monthly 

^ebt ($150,C 

irt. HoweveriPfiie Audit 

entire amount based 

le debts of $107,455 were 

taff. 

B. Preliminary Audit Report & Audit 

The Audit staff presented this matter to GJ 

provided schedules i 

the audit. In responi nterence, 

for the other half of i aiced in i 

dated January 1,2013. 

this $150 

staff recorhmc. 

itures did ni 

the Audit 

dcbls. 

aic ihu PicliE 

nenfllticn 

['es at the exit conference and 

bts for ea^reporting period covered by 

iJ2012 submitted one additional invoice 

' section above. This invoice was 

' Audit Report was sent to GJ2012, 

osc(! oil i:i^ reports filed with the Cormnission. 

(iJ2i')12 provide documentation demonstrating that 

pjpoiting on Schedule D-P. Absent such 

recSnmended that GJ2012 amend its reports to disclose 

C. Committee R^^na^ib Preliminary Audit Report 

In response to the F^iminary 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 provid^ reduced the original determination of debts and obligations not 

timely reported amount by $7,758. 

" 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. 

Audit staff restricted this review to only primary campaign debts, as per the scope of this Audit. 
22 

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 incurr^ 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 PAR, GJ2012 disputed that the $300,000 owed to NSON for 

a bonus was not timely reported. GJ2012 states that the NSON cqntract".. .specifically 

states that invoices are due and payable upon receipt," and thatJ^%qdor not invoicing 

timely does not create a reportable debt, since the campaign would not be able to base the 

debt reporting on an invoice. 

).000 for 

Pursuant to 11 CFR §104.11(b), "[a] debt or obligaj^^i^cluding a loai 

written promise or written agreement to make ary^enditure.. .shall 

date on which the debt or obligation is liKiiircd..." GJ20tS^ made a wrii 

October 14,2011, that NSON would be owed a bonus of 

party nomination as either VP or President." Thus, 

the Candidate's nomination by the L^rtarian Party 

and should have been reported as a d^HsBaoblieation on 

Monthly Report that covered May 1, 

was invoiced. 

s. written contract, 

1 as of the 

: on 

^ng any 

In a supplemental resf 

judgment that the $3J 

Candidate's not 

to its reports to report i 

was incurred on the date of 

ivention on May 5,2012, 

licdule D-P on the June 

igh May 31. 20j^^gardless of when it 

PAR, GJi 

rOGG w^^nus shouli 

lespi^ot having 

|oiilig:iiiiiii ii.<> of May] 

stated tPI it has deferred to Audit staffs 

reported as of the date of the 

ivoiced^. GJ2G12 filed amendments 

12. 

Findiiall 5. Extension of Credit by a Commercial Vendor 

During 

that NSON 

Idwork, thi 

a prohil 

udit staff's review of GJ2G12's disbursements suggested 

contribution to GJ2G12 by extending credit beyond its 

" 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 13 for additional detail), so this remains a 

non-qualified expense regardless of the 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. 

" 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 weie leceived from 

NSON. 
23 

normal course of business and not making conunercially 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 staff's suggestion that 

NSON made a prohibited contribution to GJ2012. However, neither GJ2012 nor the 

vendor present^ any documentation to demonstrate that other clients were subject to the 

same billing practices, or that GJ2012 was regularly and timely billed for services 

rendered. 

Legal Standard 

A. Contribution defined. A gift, subscription, loan (exc 

with II CFR §100.72 and §100.73), advance, or ( 

value made by a person for the purpose of infli 

is a contribution. The term "anything of vali 

The usual and normal charge for a service is ttic c 

one would expect to pay at the time the servicc> w 

made in accordance 

of rrf^v or anything of 

y elecfi^^jpr Federal office 

all in-kind'^iiriniributions. 

ly reasonable r.ite that 

The provision of services at a chal|^' than the usi!||'<ip.d normal charge results in 

an in-kind contribution. The value - !>;i a contributio:i be the difference 

between the usual and normal charger liiu <>ci \ ices and die amount the political 

committee was billed and paid. 11 C]^§^)..5?(a),aii(^ 

B. Corporate Con 

any contributii 

(formerly 2 U.S.C. 

C. Defi^ ' 

pro.^'des goods 

ndr^^business invi 

aiCFR 

A corporation is prohibited from making 

with a fedegil election. 52 U.S.C. §30118(a) 

ices I 

ior. A commercial vendor is any person who 

idate or political committee and whose usual and 

Irental, lease or provision of those goods or 

§iie 

lit! lercial Vendor. A commercial vendor, whether or not 

extend credit to a candidate or political committee provided 

D. Extension 

it is a corporal 

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: 
24 

• 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 

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

Facts and Analysis 

During audit fieldwork, the Audit stafTs review of GJ2012's ^|;^^^ents suggested 

that NSON made a prohibited contribution to GJ2012 by extend lug credit beyond its 

normal course of business and not making coirunerciallyj^sciiifibli^ attempts to collect 

$1,752,032 fix)m GJ2012 for services rendered relatirig^t^e primary clci tion". 

On October 14,2011, GJ2012 entered into a co^^t with NSON to iriaiiagc the 

campaign. NSON handled fundraising, prcs-^ siiid m-.uhii i^ions, creative athti^ising. 

and all administrative functions of the primary e'eeui 

NSON totaled 86% of the total of all disbursements 

of GJ2012's outstanding debt as of D@<^mber 31,201: 

21,2011 through December 21,2012,'<i^|y|^invoiced Gi 

management expenses, including fiindr^ii^l-l^e^cal work. 

of March 31,2013, $1,752,032 had been quts 

remains outstanding. To 

$2,198,204 invoiced b 

The terms of the cbm 

. Disburs^ents to 

12, and accounted for 89% 

wed to NSON. From April 

98,204 for campaign 

ivel arrangements. As 

thah 120 days, and $936,247 

It^ts of $1,261,957 for the 

| GJ2012 andlp^ON stated that: 

NSON carr^^;h •::•! percent (18%) per annum on payments 

not nia^withm^l^a/, (30)'i'^of the date of the invoice. NSON may, at its sole 

disgl^lion and witho^:t.-1. e. ^^Pd .its services hereunder should Client not pay in 

amount invoictii:. NSOI^Pnher reserves the right, at its sole discretion to 

wittihOliijl&om Client an> snstrumeiiu of NSON's services pending payment on Client's 

account.'' 

NSON had not 

not locate any di 

the records providi 

interest charges as of March 31,2013. Audit staff also did 

ition of attempts by NSON to collect on the outstanding debt in 

y GJ2012. 

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 

" Audit staff restricted this review to only primary campaign services, as per the scope of this Audit. 
25 

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 :nade to this vendor. 

Ongoing attempts have been made and continue to be collect the 

outstanding debt owed from the Gary Johnson 2012 These 

include support and help with continued solicitation lui .^.IIIJ:ICIIIN. /^y and 

all other legal remedies are and will be considered tc the ob^^an. 

The Audit staff reviewed the documentation su^l response to t^cxii conference. 

Although GJ2012 provided an internally geni^t^, and a copv|3f a 

lawsuit filed, GJ2012 did not provide any cont 

NSON. As such, the Audit staff cannot verify with a!^ 

contract with GJ2012 was offered ondfhg same terms ofl 

other NSON clients, political or non-f 

ices to, oth^^clients of 

lie certainty that NSON's 

in the same manner as 

In addition, on June 18,2014, GJ2012 suE 

charged by NSON on di-lr.s (v.ii^'.anding 1 

[ivoices for interest 

jgh June 2014. 

The Audit staff i 

from this vendor 1 

business and did not i 

informatic 

similar .siJ^ and: 

Its were us 

^guards si 

advance pi^^nt policies,^ 

normal busines^practice fc 

: GJ2012 pi%ide documentation, to include statements 

I the credit e^dg^ed was in the normal course of 

md contribution by the vendor. The 

^f other non-political customers/clients of 

services were provided and similar billing 

should provide information concerning the 

policies for similar non-political clients and work, 

debt collection policies and practices to show that this was 

[SON or provide additioiml explanation about the situation. 

C. Committee Res^^^e to Preliminary Audit Report 

In response to the Preliminary Audit Report recommendation, GJ2012 provided 

additional information about the business practices of NSON. In an affidavit, 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 finance charges in order 

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

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

discussions with GJ2012 to accept campaign assets in lieu of payment. 
26 

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 frequently extend credit to clients sedcing 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 

cannot verify whether or not the clients are political or 

these entities cannot be verified, the Audit staff does 

adequate evidence that credit was extended to GJ! 

and non-political clients. 

Furthermore, documentation provided by Gji()l 2 ici show^ 

collect on outstanding debts did not show that "NSON rcgi 

services..." In fact, GJ2012 was notjnyoiced for ser\ iccsa 

even more than a year after the servi(l» wc:u performed, 

for interest due on amounts owed until Dcccrr.'^er "*1,2013, 

Candidate's date of ineligibility, for invt^^ ; >.d been 

to twenty-two (22) months. In addition, i^^rncriiatic: 

political clients has be^^e^^ted to show^p NSON 

amounts due by nonr-^itical '^pts in the s&e manner. 

that the Audit staff 

Since the nature of 

to be 

other political 

_ NSON atte^:c(l to 

arly invoiced (02012 for all 

some cases until months or 

[N did not submit invoices 

a year after the 

for thirteoi (13) 

as invoices to other nonalso treated the collection of 

Pursuant to II CFR §S 

NOCO all caoitj^kas^ets wf 

value exc 

anylist 

GJ2012 

,^theNOCOi 

wided to the. 

Commissions^. 

snts I 

: documental 

ligns are required to report on the 

f exceeded $2,000, and other assets whose 

: a list of these items. GJ2012 did not disclose any 

i when applying for matching funds, nor were 

; fieldwork. The Audit staff requests that 

ay assets owned and not previously disclosed to the 

The Audit staff nbii^^atrNSON had billed GJ2012 $345,333 in interest as of October 

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

billed by NSON to (02012 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 Commission, then the lower 

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

^ If GJ2012 and NSON come to an agreement to settle the Conunittee'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. 
27 

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.^^ 

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

adjustment.