John Edwards: $2.3 million must be paid back by campaign committee

John Edwards $2.3 million: Attorneys for Edwards' campaign committee say they will appeal the decision, which otherwise would take effect when the audit is completed in about 30 days.

The Federal Elections Commission on Thursday voted unanimously to require former U.S. Sen. John Edwards' presidential campaign committee to pay back about $2.3 million, mostly in federal matching funds it received after he pulled out of the race in January 2008.

Attorneys for Edwards' campaign committee say they will appeal the decision, which otherwise would take effect when the audit is completed in about 30 days.

Every presidential candidate who receives federal matching money is audited. Campaign committees can't zero-out books until there has been a final audit, which takes years. Several members of the six-person commission stressed that this was a routine case.

"Basically, this is a math problem," Commissioner Ellen Weintraub said in the hearing in Washington, D.C. "When he stopped running for president we take a look at, as of that point in time, what were the net outstanding campaign obligations? What did he owe? We compare that against how much money he got in matching funds. It's either a subtraction or an addition problem."

But the audit adds up to one more problem for the one-time presidential candidate . Last month he was indicted on federal charges that he used nearly $1 million in campaign contributions to keep secret an affair. That money never went through his campaign committee, and Edwards contends it came as gifts, not political contributions.

As of June 30, Edwards' campaign committee had $2.6 million on hand, according to FEC records.

Besides the math, at issue in the audit is how and when the money was spent: Was it part of what he owed at the time he bowed out of the contest on Jan. 30, 2008? Or was it part of "winding-down" money to close out his campaign?

Candidates' committees can use federal matching money to defray the cost of outstanding campaign expenses incurred up until the point they stop running, if they have used all their private contributions. Financial statements the John Edwards for President committee filed indicated that additional matching funds were justified to satisfy outstanding debts. But auditors found the campaign had overstated its accounts payable by $4.5 million and understated its cash-on-hand and winding-down expenses.

Auditors want the campaign to repay $2.1 million of the nearly $13 million in matching funds it received. They also recommend the committee repay nearly $140,000 in 128 checks that were refunded to individual contributors who wanted their money back .

When Edwards abandoned the campaign, he had about $11 million in outstanding obligations, auditors found.

The Washington, D.C., law firm representing the campaign, Utrecht & Phillips, argued in a written response that there was no overpayment. The attorneys contend the campaign should have received matching funds earlier than it did. As a result of the late payment, the committee says, it was entitled to matching funds based on its outstanding obligations at the time it received the payment rather than before Edwards pulled out of the race.

The Edwards campaign also contends that auditors were wrong when they determined that about $500,000 in payroll did not qualify for matching funds because the money was spent in February, after Edwards was no longer eligible. The campaign says the money was used to pay employees overtime, to close out more than 70 offices across the country, and for travel reimbursement.

Auditors said that the campaign had given conflicting explanations about the February payroll, including that it was for bonuses that tripled staffers' salaries. The committee's attorneys say the explanations are consistent.

Commissioner Donald McGahn II said he agreed with the auditors' findings, although he didn't see anything wrong with the committee having different explanations for how it spent the money. "I don't like micromanaging campaigns," said McGahn, who was appointed by President George W. Bush in 2008. "I don't think it's my job. They spend money as they want to spend it. But it's taxpayer money."

The Edwards campaign also argues that it is incurring legal costs that shouldn't be counted against the limit on how much "winding down" money it can spend . Campaign attorneys note the committee has been "providing extensive information to the Department of Justice." That is a reference to the federal investigation that eventually led to Edwards' indictment in North Carolina on federal charges alleging criminal violations of federal campaign laws to cover up his affair with Rielle Hunter, with whom it was later revealed he had a child.

FEC legal counsel views those expenses as a legitimate use of campaign money, but says they should be included under the winding-down cap. The campaign committee's attorney, Patricia Fiori, said that no campaign funds have been spent on Edwards' defense in the criminal case.

The FEC has approved candidates using campaign funds for legal fees, but decides on an individual basis.

Edwards' criminal case came up briefly during Thursday's FEC meeting when McGahn noted that the commission could end up dealing with the campaign committee again. "I guess we'll call it the pink elephant in the room — the indictment issue," McGahn said.

The audit notes that Edwards is accused of payments by third- and fourth-party intermediaries to keep a lid on his affair. If federal prosecutors' theory of the case leads to Edwards' conviction, then his committee may have to repay additional funds.