FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

MEMORANDUM 

TO: 

FROM: 

SUBJECT: 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Erin Chlopak 

Acting Associate 

General Counsel for Policy 

Lorenzo Holloway *3/^ 

Assistant General Counsel 

Compliance Advice 

Jennifer Waldman 

Attorney 9 'J 

January 8,2018 

Preliminary Audit Report on O'Malley for President (LRA 1007) 

I. INTRODUCTION 

The Office of General Counsel ("OGC") has reviewed the Preliminary Audit Report 

("Proposed Report") on O'Malley for President ("Cohimittee"). The Proposed Report contains 

five findings: Net Outstanding Campaign Obligations (Finding I), Amounts Owed to the U.S. 

Treasury (Finding 2), Failure to Itemize Offsets to Expenditures (Finding 3), Reporting of 

Debts and Obligations (Finding 4), and Stale-Dated Checks (Finding S). We concur with the 

findings and address questions raised by the Audit Division in its cover memorandum 

transmitted with the Proposed Report. If you have any questions, please contact Jennifer 

Waldman, the attorney assigned to this audit. 
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PAR Legal Comments 

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II. REFUNDED NONQUALIFIED CAMPAIGN EXPENSES DO NOT REQUIRE 

REPAYMENT. 

The Committee spent $39,834 on behalf of the O' Say Can You See Political Action 

Committee (the "PAC"), which the PAC refunded. Since the Committee spent these funds on 

behalf of the PAC, these funds were not spent in connection with Martin O'Malley's campaign 

for nomination and therefore are nonqualified expenditures. 11 C.F.R. §§ 9032.9(a), (c); 

9034.4(a)(1). After a determination by the Commission that a committee used public funds on 

nonqualified campaign expenses, a committee, as a general matter, is required to make a 

repayment. 11 C.F.R. § 9038.2(b)(2). The auditors, however, are not recommending a 

repayment for these nonqualified campaign expenses. The auditors argue, in part, that a 

repayment is not required because the Committee paid the nonqualified campaign expenses 

before the candidate received public funds. 

We agree with the approach not to recommend a repayment but we disagree with the 

reasoning. All expenses, even those incurred before a committee has applied for matching 

public funds, must be examined until the last public dollar has been spent. See 11 C.F.R. § 

9038.2(b)(2)(iv). As the Court of Appeals for the D.C. Circuit has recognized, "federal funds 

and private contributions are commingled in the candidate's coffers," and "the regulations 

require repayment of unqualified expenditures regardless of whether the expenditures could 

properly be attributed to federal matching fund payments." Kennedy for President Committee 

V. Federal Election Commission, 734 F.2d 1558,1562 (D.C. Cir. 1984). Therefore, it is 

irrelevant when the Committee the paid the nonqualified expenses if its account still maintains 

public funds. 11 C.F.R. § 9038.2(b)(2)(iv). 

We believe the Committee does not owe a repayment because the PAC refunded the 

funds spent on the Committee's behalf, replacing the money spent on the non-qiialified 

expenses. The PAC's refund restored the public funds that the Committee used for the nonqualified expenses. Since the public funds were refunded to the Committee, these funds were 

available to pay other qualified campaign expenses or to repay the Treasury if the Committee 

had been in a position of canying a surplus or it had received public funds in excess of its 

entitlement. See 11 C.F.R. §§ 9038.2(b)(1), (4). Therefore, any payment to the Treasury for 

these non-qualified campaign expenses would be a penalty. A repayment determination is not 

meant to be a penalty, rather it is a method of making the govemment whole. Kennedy for 

President, 734 F.2d at 1565 (explaining that a repayment is not a penalty but it "merely recoups 

[the] money expended by the candidate in violation of conditions he or she voluntarily assumed 

in order to receive the matching funds."). 

III. AUDIT DIVISION SHOULD INCLUDE THE FINDING ON THE USE OF 

PUBLIC FUNDS TO DEFRAY NONQUALIFIED CAMPAIGN EXPENSES. 

Although the Audit Division is not recommending a repayment for the use of public 

funds to pay nonqualified campaign expenses, we believe that there should be a finding in the 

audit report to discuss the fact that the Committee used public funds for this purpose. One of 

the important purposes of the public financing statutes is to allow taxpayers to scrutinize 

publicly funded campaigns — to know where campaign finances come from and how they are 

spent. Reagan Bush Committee v. EEC, 525 F. Supp. 1330,1340 (D.D.C. 1981) ("Clearly, 

section 9009(a) evinces a purpose on the part of Congress to allow taxpayers who chose to 

direct a portion of their taxes to the Presidential Election Campaign Fund to know exactly how 

those tax monies are being spent... Yet the interests protected by PECFA do not stop at the 
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Page 3 of3 

public's right to know how tax monies are distributed, but also embrace a concern for openness 

and accountability to the public in the operation of Presidential campaigns") Reagan Bush 

Committee v. FEC, 525 F. Supp. 1330,1340 (D.D.C. 1981).' Therefore, we recommend that 

the Audit Division revise the audit report to include a finding that addresses these nonqualified 

campaign expenses. 

' The court in Reagan Bush Committee was interpreting the Presidential Election Campaign Fund Act 

(general election financing statute). The statute at issue in this Proposed Report's finding is the Presidential 

Primary Matching Payment Account Act. However, the different statutes share a common objective of ensuring 

transparency regarding candidates' use of public funds.