Preliminary Audit Report of the 

Audit Division on Gary Johnson 

2012, Inc 

(April 1,2011-May 31, 2014) 

Why the Audit 

Was Done 

Federal law requires the 

Commission to audit 

every political 

committee established 

by a candidate who 

receives public funds 

for the primary 

campaign.' The audit 

determines whether the 

candidate was entitled 

to all of the matching 

funds received, whether 

the campaign used the 

matching funds in 

accordance with the 

law, whether the 

candidate is entitled to 

additional matching 

funds, and whether the 

campaign otherwise 

complied with the 

limitations, 

prohibitions, and 

disclosure requirements 

of the election law. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to any of 

the matters discussed in 

this report. 

About the Campaign (p. 3) 

Gary Johnson 2012, Inc (GJ2012) is the principal campaign 

committee for Gary Johnson; a candidate for the Libertarian 

Party nomination for the office of President of the United 

States. The Committee is headquartered in Salt Lake City, 

Utah. For more information, see the chart on the Campaign 

Organization, p. 3. 

Financial Activity (p. 4) 

• Receipts 

o Contributions from 

Individuals 

Matching Funds Received 

Contributions fiom the 

Candidates 

Total Receipts 

Disbursements 

Operating Expenditures 

Fundraising Disbursements 

Exempt Legal and 

Accounting Disbursements 

Total Disbursements 

$2,241,318 

510,261 

o 

o 

o 

o 

o 

8,000 

S 2,759,579 

$ 2,534,497 

153,019 

28,130 

$ 2,715,646 

Findings and Recommendations (p. 5) 

• Net Outstanding Campaign Obligations (Finding 1) 

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

• Use of General Election Contributions for Primary Election 

Expenses (Finding 3) 

• Reporting of Debts and Obligations (Finding 4) 

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

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

Audit Division on 

Gary Johnson 2012, Inc 

(April 1, 2011 - May 31, 2014) 
Table of Contents 

Page 

Part I. Background 

Authority for Audit 1 

Scope of Audit 1 

Inventory of Campaign Records 1 

Committee Structure 1 

Part II. Overview of Campaign 

Campaign Organization 3 

Overview of Financial Activity 4 

Part III. Summaries 

Findings and Recormnendations S 

Amounts Owed to the United States Treasury 7 

Part IV. Findings and Recommendations 

Finding 1. Net Outstanding Campaign Obligations 8 

Finding 2. Amounts Owed to the U.S. Treasury 11 

Finding 3. Use of General Election Contributions for Primary Election 

Expenses 16 

Finding 4. Reporting ofDebts and Obligations 17 

Findings. Extension of Credit by a Commercial Vendor 19 
Parti 

Background 

Authority for Audit 

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

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

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

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

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

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

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

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

time to time as it deems necessary. 

Scope of Audit 

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

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

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

covered by this audit: 

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

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

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

contributions; 

4. the disclosure of contributions received; 

5. the disclosure of disbursements, debts and obligations; 

6. the consistency between reported figures and bank records; 

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

8. the campaign's compliance with spending limits; 

9. the completeness of records; and 

10. other campaign operations necessary to the review. 

Inventory of Campaign Records 

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

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

immediately. 

Committee Structure 

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

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

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

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

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

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

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

matching funds for the primary campaign and this audit covers conunittee activity and 

information obtained to determine whether expenses were or were not qualified campaign 

expenses defrayed in connect 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 1,2011 - May 31,2014" 

Headquarters Salt Lake City, Utah 

Bank Information 

• Bank Depositories One 

• Bank Accounts One primary checking account and one general 

checking account 

Treasurer 

• Treasurer When Audit Was Conducted Chet Goodwin 

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

Chet Goodwin (1/5/12 - Present) 

Management Information 

• Attended Commission Campaign Finance 

Seminar 

No 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

A threshold submission was submitted on April 26,2012, and the Commission certiried 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 5,2012, 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 finm Individuals^ 2,241,318 

o Matching Funds Received" 510,261 

o Contributions fix)m the Candidates 8,000 

Total Receipts S 2,759,579 

Disbursements 

o Operating Expenditures 2,534,497 

o Fundraising Disbursements 153,019 

o Exempt Legal and Accoimting 

Disbursements 28,130 

Total Disbursements $ 2,715,646 

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

^ GJ2012 received approximately 24,S00 contributions from more than 1,400 individuals. 

^ As of the Candidate's DOI (May S, 2012), GJ2012 had received no matching funds. GJ20I2 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 May 31,2014, and 

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

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

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

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

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

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

matched. The Audit staff recommends that GJ2012 demonstrate that primary election 

contributions were not spent on non-qualified campaign expenses, and that matching 

fimds were received for only eligible contributions. Absent evidence to the contrary, the 

Audit staff will recommend that the Commission make a determination that $336,030 is 

payable to the United States Treasury. (For more detail, see p. 11.) 

Finding 3. Use of General Election Contributions for 

Primary Election Expenses 

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

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

receipts on Primary election expenses prior to the Candidate's DOI. The Audit staff 

recommends that GJ2012 provide documentation to show that this did'not occur, or 

provide additional explanation about the situation. (For more detail, see p. 16.) 

Finding 4. Reporting of Debts and Obligations 

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

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

Obligations) as required. The Audit staff recommends that, absent documentation 

demonstrating that these expenditures did not require reporting on Schedule D-P, GJ20r2 

amend its disclosure reports to properly disclose these debts. (For more detail, see p. 17.) 

Finding 5. Extension of Credit by a Commercial Vendor 

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

that NSON, Inc. (NSON)' made a prohibited contribution to GJ2012 by extending credit 

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

to collect $1,752,032 fiom GJ2012 for services rendered. The Audit staff recommends 

that GJ2012 provide documentation demonstrating that the credit extended to GJ2012 

^ See footnote 14 on page 19. 
was in the vendor's ordinary course of business and that the vendor made reasonable 

attempts to collect these debts. (For more detail, see p. 19.) 
Summary of Amounts Owed to the United 

States Treasury 

• Finding 2.A. 

(p. 13) 

Payment of Non-Qualified Expenses 

with Primary Election Funds 

. $ 334,780 

• Finding 2.B. 

(p. 15) 

Receipt of Matching Funds Based 

on Ineligible Contributions 

1,250 

Total Due U.S. Treasury $336,030 
Part IV 

Findings and Recommendations 

I Finding 1. Net Outstanding Campaign Obligations 

Summary 

The Audit staffs review of GJ2012's financial activity through May 31,2014, and 

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

payments in excess of his entitlement. 

Legal Standard 

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

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

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

among other things: 

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

committee and capital assets listed at their fair market value; 

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

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

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

occurs first: 

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

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

receives less than 10 percent of the popular vote; 

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

party nominates its candidate for the general election; or 

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

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

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

C. Definition of Non-Qnalified 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 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; 

o Made in connection with the candidate's campaign for nomination; and 
o Not incurred or paid in violation of any federal law or the law of the state 

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

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

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

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

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

activity. 11 CFR §9034.4(a)(3). 

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

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

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

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

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

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

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

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

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

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

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

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

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

11 CFR §9034.11(d). 

Facts and Anal3rsis 

A. Facts 

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

GJ2012's financial activity through May 31,2014, analyzed estimated winding down 

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

on the following page. 
10 

Gary Johnson 2012, Inc 

Statement of Net Outstanding Campaign Obligations 

As of May 5,2012 

Prepared June 20,2014* 

Assets 

Cash in bank 

Total Assets 

Liabilities 

Accoimts 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 - 5/31/14) [a] 

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

Total Liabilities 

Net Outstanding Campaign Obligations 

(Deficit) as of May S, 2012 

$ (10,856)' 

$(1,268,352) 

(503,515) 

0 

(22,321) 

(148,763) 

S (10,856) 

$(1,942,951) 

$(1,953,807) 

Footnotes to NOCO Statement: 

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

the General election on December 7,2012. 

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

accordingly. 

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

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

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

2012 

$(1,953,807) 

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

2013) 

1,216,661 

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

Remaining Net Outstanding Campaign Obligations 

(Deficit) as of January 8,2013 

$105,129 

As presented above, GJ2012 has not received matching fund in excess of its entitlement. 

' The Audit staff will update the NOCO when requested bank statements are provided by GJ2012. 

Disclosure reports filed by GJ2012 covering activity subsequent to May 31,2014 cannot be used to 

update the NOCO because many of the reported expenses were included in unitemized totals and 

therefore cannot be attributed to the primary or general elections. 

' 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). 
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 that showed that GJ2012 was in a surplus 

position and would be required to repay some matching funds received to the U.S. 

TreasuryAudit staff requested that GJ2012 provide additional documentation after the 

exit conference to enable the Audit staff to update the NCX^O statement. On January 24, 

2014, and June 18,2014, GJ2012 submitted additional invoices in support of debts 

incurred for primary election expenses. These additional invoices were mostly for 

interest owed on debts incurred in relation to the primary election that had not been paid, 

and one invoice previously not provided to the Audit staff for a debt incurred for 

fundraising activity in relation to the primary election. The Audit staff reviewed this 

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

documentation, the revised NOCO indicated that GJ2012 did not receive matching funds 

in excess of its entitlement. 

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

GJ2012 demonstrate any adjustments it believes are required in connection with any part 

of the NOCO statement or provide any other additional comments. 

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

Summary 

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

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

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

matched. The Audit staff-recommends that GJ2bl2 demonstrate that primary election 

contributions were not spent on non-qualified campaign expenses, and that matching 

funds were received for only eligible contributions. Absent evidence to the contrary, the 

Audit staff will recommend that the Commission make a determination that $336,030 is 

payable to the United States Treasury. 

Legal Standard 

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

campaign expense. 

• An expense that is: 

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

period beginning on the day the individual becomes a candidate and 

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

§9033.5; 

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

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 iii the Statement of Reasons In Support of Final 

Determination of Entitlement in the Matter of Governor Gary Johnson (LRA #905), dated November 14, 

2013. 
12 

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

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

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

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

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

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

activity. 11 CFR §9034.4(a)(3). 

B. Definition 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 above). These include, for example, but are not limited to: 

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

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

expense. 

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

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

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

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

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

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

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

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

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

Election Campaign Act are not qualified campaign expenses and cannot be 

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

expended to pay such penalties shall not be considered contributions or 

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

Act. 

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

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

expenses, are not qualified campaign expenses. 

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

be considered a nonqualified campaign expense. Factors considered by the 

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

whether the committee demonstrates that it made conscientious efforts to 

safeguard the missing equipment; whether the committee sought or obtained 

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

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

§9034.4(b). 

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

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

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

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

§9038(b)(2)(A). 
13 

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

for non-qualifi^ campaign expenses from committees that have received matching fund 

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

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

matching funds. In doing this, the Conunission will review committee expenditures fiom 

the date of the last matching funds payment to which the candidate was entitled, using the 

assumption that the last payment has been expended on a last-in, first-out basis. 11 CFR 

§9038.2(b)(2)(iii)(B). 

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

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

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

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

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

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

down costs. 11 CFR §9034.11(d). 

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

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

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

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

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

candidate's accoimts. 11 CFR §9038.2(b)(2)(iii). 

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

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

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

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

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

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

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

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

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

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

section. 11 CFR §9038.2(a)(2). 

Facts and Analysis 

A. Payment of Non-Qualified 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 expenses paid with primary election funds. Of 

these disbursements, $1,192,400 occurred during the period between the Candidate's 

DDI, May S, 2012, and 31 days after the general election, December 7,2012. During 
14 

this period, expenses incurred are not considered primary winding down costs. Since 

these expenses are not related to the primary election of the Candidate, they are 

considered non-qualified campaign expenses. In the post-election wind-down period, 

when wind-down expenses must be allocated between the primary and general 

election campaigns, $7,301 was spent. Since these amounts were not allocated 

between campaigns, these are also non-qualified expenses. Additionally, the 

accounting staff for GJ2012 stated that expenses identified by themselves, or by 

NSON, as general election expenses were paid from the general account, and 

expenses identified as primary expenses were paid fijom the primary account. Of the 

expenses identified by Audit staff as non-qualified expenses, expenses totaling 

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

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

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

million in private contributions designated for the primary election were deposited 

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

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

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

Final Determination of Entitlement in the Matter of Governor Gary Johnson (LRA 

#905), dated November 14,2013. 

To determine which general election expenses were paid using the contributions 

designated for the primary election. Audit staff followed the following procedures: 

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

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

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

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

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

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

disbursements 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 the review of the general election account. 

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

receipts separately (primary contributions, general contributions and receipts 

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

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

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

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

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

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

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

account ended on that date. 

Following these procedures resulted in the most favorable repayment calculation for 

GJ2012. 
15 

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

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

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

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

matching funds, Audit staff would need to receive information fi?om GJ2012 about 

contributions received so that the amounts received for the primary and general 

elections could be accurately recorded. Although this information was requested, no 

contribution detail has been received from GJ2012 for contributions dated after 

December 31,2012. In addition, although Audit staff requested bank statements, no 

bank statements for the general account were received after the November 2013 

statement. Without these bank statements. Audit staff does not know what 

expenditures have been made and cannot determine if these expenditures were for the 

primary or general election. Since Audit staff is unable, given the documentation 

provided, to verify the receipts or expenditures after December 31,2012, but has been 

able to verify the date the last contribution submitted for matching funds was 

deposited to the general account, the Audit staff used December 20,2012, as the 

cutoff date for examining the general account for non-qualified expenses.'' 

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

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

amount of $334,780. 

2. Preliminary Audit Report 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 reconunends that, within 60 calendar days of service 

of this report, GJ2012 demonstrate it did not make nonqualified expenses or provide 

any other additional comments it deems necessary. Absent such evidence, the Audit 

staff will make a recommendation that the Commission make a determination that 

$334,780 is repayable to the U.S. Treasury. 

B. Receipt of Matching Funds Based on Ineligible Contributions 

1. Facts 

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

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

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

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

contributions was $1,250. 

Audit staffs estimate of the additional amount of possible non-qualified expenses is S12,000, which 

would result in an additional repayment amount of about $3,400. The $12,000 estimate is based on the 

provided bank statements through November 2013 and an average of the expenses paid on the 

September, October and November 2013 multiplied by four to stand in for the last four months of 

expenses in the bank statements not provided to Audit staff. This estimate also assumes that all the 

expenses were paid using contributions to the primary election. 

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

days post-DOl ($303,751/$1,088,509=.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 recommends that, within 60 calendar days of service 

of this report, GJ2012 show that the contributions were not general election 

contributions or provide any other additional comments it deems necessary. Absent 

such evidence, the Audit staff will make a reconunendation 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 DOl. The Audit staff 

recommends that GJ2012 provide documentation to show that this did not occur, or 

provide additional explanation about the situation. 

Legal Standard 

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

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

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

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

acceptable accounting method to distinguish between contributions received for the 

primary election and contributions received for the general election. Acceptable 

accounting methods include, but are not limited to; 

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

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

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

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

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

Facts and Anal3rsis 

A. Facts 

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

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

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

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

to spend &nds 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 
17 

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

election purposes. 

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

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

determined the private contributions designated for the general election using the same 

calculations as was 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 amormt, a total of $10,000 was deposited to the general 

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

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

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

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

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

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

were bank fees incurred prior to Gary Johnson's DOI and payments on invoices 

submitted for various services incurred in coimection with Gary Johnson's campaign for 

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

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

B. Preliminary Audit Report & Audit Division Recommendation 

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

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

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

representatives did not cormnent on this finding. 

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

GJ2012 provide documentation to demonstrate that general election contributions were 

not used to fimd primary election activity. In accordance with section 102.9 of 11 CFR, 

documentation should demonstrate that an acceptable accounting method was used. 

Absent such a demonstration, GJ2012 should provide any additional comments it 

considers necessary with respect to this matter. 

I Finding 4. Reporting of Debts and Obligations 

Summary 

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

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

Obligations) as required. The Audit staff recommends that, absent documentation 

demonstrating that these expenditures did not require reporting on Schedule D-P, GJ2012 

amend its disclosure reports to properly disclose these debts. 

Legal Standard 

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

and nature of outstanding debts and obligations until those debts are extinguished. 
18 

52 U.S.C. §30104(b)(8) (formerly 2 U.S.C. 434(b)(8)) and 11 CFR §§104.3(d) and 

104.11(a). 

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

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

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

11 CFR §104.11(a). 

C. Itemizing Debts and Obligations. 

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

less must be reported on the next regularly scheduled report. 

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

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

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

11 CFR §104.11(b). 

Facts and Analysis 

A. Facts 

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

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

campaign management services such as fundraising, accounting, clerical and 

administrative staff, and travel arrangements. 

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

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

for a bonus after Gary Johnson received the nomination as the Libertarian Party candidate 

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

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

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

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

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

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

on when the contract was put in force. The remaining reportable debts of $107,455 were 

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

.3. Preliminary Audit Report & Audit Division Recommendation 

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

provided schedules detailing the unreported debts for each reporting period for the audit 

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

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

" 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. 
19 

dated January 1,2013. To date, this $150,000 has not been reported on any reports filed 

with the Commission. 

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

GJ2012 provide documentation demonstrating that these expenditures did not require 

reporting on Schedule D-P. Absent such documentation, the Audit staff recommends that 

GJ2012 amend its reports to disclose the outstanding debts. 

Finding 5. Extension of Credit by a Commercial Vendor | 

Summary 

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

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

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

$1,752,032 from GJ2012 for services rendered. The Audit staff recommends that 

GJ2012 provide documentation demonstrating that the credit extended to GJ2012 was in 

the vendor's ordinary course of business and that the vendor made reasonable attempts to 

collect these debts. 

Legal Standard 

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

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

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

is a contribution. The term "anything of value" includes all in-kind contributions. 

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

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

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

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

between the usual and normal charge for the services and the amount the political 

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

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

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

(formerly 2 U.S.C. 441b(a)). 

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

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

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

services. 11 CFR § 116.1 (c). 

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. 
20 

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

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

that: 

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

and 

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

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

11 CFR§116.3(a) and (b). 

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

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

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

in approving the extension of credit; 

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

credit to the same candidate or political committee; and 

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

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

Facts and Analysis 

A. Facts 

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

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

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

$1,752,032 from GJ20I2 for services rendered relating to the primary election. 

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

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

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

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

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

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

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

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

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

$2,198,204 invoiced by NSON. 

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

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

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

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

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

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

account. 
21 

NSON had not assessed any interest charges as of March 31,2013. Audit staff also did 

not locate any documentation of attempts by NSON to collect on the outstanding debt in 

the records provided by 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 

clients of NSON 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. The aging schedule detailed the outstanding amounts fhrm nine 

clients, including another political committee also associated with Gary Johnson. Six of 

these clients had debt outstanding more than 300 days, and 84% of the total debt 

outstanding on the aging schedule was owed by the political committee. 

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

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

outstanding debt owed fiom the Gary Johnson 2012 campaign. These 

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

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

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

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

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

NSON. As such, the Audit staff cannot verify that NSON's contract with GJ2012 was 

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

or non-political. 

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

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

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

GJ2012 provide documentation, to include statements from this vendor that demonstrates 

the credit extended was in the normal course of business and did not represent an 

excessive in-kind contribution by the vendor. The information provided may include 

examples of other non-political customers/clients of similar size and risk for which 

similar services were provided and similar billing arrangements were used. Also, GJ2012 

should provide information concerning the presence of safeguards such as billing policies 

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

policies and practices to show that this was normal business practice for NSON or 

provide additional explanation about the situation.