Dangers and Pitfalls

Dangers and Pitfalls of Municipal Election Campaign Finances

Financial Administrative Procedures to Consider:

  1. Invoices for Payment.  Do not remit payment to anyone without getting invoices in your hand first.  Avoid the issue of not having invoices on hand for the audit.  Many individuals will seek reimbursement for expenses incurred for your campaign.  Insist that reimbursement cannot occur unless all invoices are presented to you first.  Consider people using an expense report to which they attached invoices and submit that to you. The last thing you want to do is spend time chasing people down for invoices after e-day while trying to get ready for the audit.
  2. Contribution Cheques.  These are required for the audit.  Make copies of all contribution cheques deposited into your campaign bank account.  Organize them according to deposit date, grouped together if more than one cheque was deposited at one time.  The last thing you want to do is to request the bank to find images of all cheque deposits while trying to get ready for the audit.  It can take the bank quite some time to do this.
  3. Payments after e-day.  If you think you are close to completing your campaign transactions you may want to consider issuing bank drafts for final payments instead of cheques.  The funds clear the bank right away, but the service fees can be a bit costly ($6.50 to $7.50 usually).  Sometimes, reimbursement payments to people are not deposited as the individual who you are reimbursing thinks they are helping the campaign in some way by not depositing or accepting payment.  This can cause delays with your audit readiness.
  4. Contractor Fee’s vs Employment.   As campaigns are pretty short lived entities, it is best if campaign workers are paid as self employed contractors and a contract/service agreement that outlines the terms of the services and compensation exists.  Invoices from workers for the dates and period of time worked are very important as they agree to the contract/service agreement terms.
  5. Assets.  Things like computers, printers, computer monitors are normally capitalized (not expensed) in accounting with the expense amortized over a period of years.  In municipal campaign finances, they are expensed 100% and apply to the limit.  If assets are purchased it is best to do this in a reasonable time period at some point near the beginning of the campaign.  Doing so supports the perception that the purpose of asset was to  support the campaign activity during the campaign period.  As explained below under the heading “Un-Reasonable Campaign Surplus Erosion after e-Day”, the optics of buying assets just before e-day or after e-day is not a good idea.  If possible, try to sell assets after e-day at their current market value as used items.  The income is reported as “other income”  on Form 4 and can be used to pay off campaign expenses or be added to the surplus payable to the City.
  6. Old Sign Inventory.  It is important to note that any pre-existing old sign material a candidate has from a previous election that is brought into and used by the current 2022 campaign must be valued at current market value and reported on Form 4 as an expense subject to the spending limit and a goods contribution from the candidate.  The goods contribution applies to the candidate’s contribution limit as provided by the City Clerk to the candidate.
  7. New Sign Inventory.  When you buy sign material keep in mind that 100% of the expense is subject to the spending limit.  There is no correction as the end of the campaign for any amount that is not used.  For example, $1,000.00 in sign material is purchased at the beginning of the campaign, and at the end of the campaign approximately $200.00 of the sign material was never used.  The full $1,000 is a campaign expense subject to the spending limit, regardless of what event amount of unused sign material exists at the end of the campaign.  Be sure to purchase what you need!

Election Finance Grey Areas and Compliance Audits

With Municipal Election Finances, there is much risk to exploring finance grey areas of the Ontario Municipal Elections Act (MEA) and pushing the boundaries of generally accepted accounting principles.   By “grey areas” I mean those areas that are poorly defined in the Act and or activities that push the interpretation of accounting principles.  In most cases, pushing into the grey area rarely results in winning an election and compromises your chance of holding your elected seat after the election if you were elected.  Simply, it’s not worth the risks, so it is highly encouraged that you stick closely to the election finance rules as presented in the MEA.

The risk occurs at both the audit stage of the the campaign and the compliance audit of the campaign.  Your goal is to have a clean audit report that does not have qualified opinions that make your exploration of grey areas stand out.  After you submit your Form 4 and Auditor’s Report to the City Clerk, there is a 90 day period where any member of the public can submit an application to have your campaign return undergo a compliance audit to the City’s compliance audit committee.  A compliance audit is much more far reaching than a standard audit and can probe into personal records.  Exploring campaign election finance grey area’s in the MEA simply sets you up for a compliance audit, and you don’t want to go through one of those.  Here are some common grey area’s that have been explored and cause great risk.

  1. Volunteers become paid contractors.  Be careful not to explore the grey area of  shifting volunteer services to paid contractor services after e-day.  A volunteer is someone who does not get paid for their work during the campaign period.  Imagine the scenario where a volunteer is told that should a cash surplus exist in the campaign bank account after e-day, they will get paid a fee for their services rendered during the campaign.  Basically, this shifts their role from volunteer to service contractor, for services rendered during the campaign period (subject to the limit).  You can certainly do this, but the expense is accrued to the campaign period and is a campaign period expense subject to the limit, NOT an after e-day expense not subject to the limit.  You can give a token of appreciation to volunteers after e-day but the amounts should be much smaller than a salary (simple reasonable amount gift cards are ok).  However, these amounts would apply to the campaign limit for parties and expressions of appreciation after e-day (not subject to limit).
  2. Worker Services Rendered After e-Day.  After e-day people can be paid to retrieve/collect deployed signs, clean up the office space if office space was rented and used etc.  This expense is not subject to the spending limit.  It is important to not conflate payment to a worker for services rendered during the campaign period with payment to a worker for services rendered after e-day (not subject to the limit).  Invoices from workers should clearly present the times and dates of work service rendered and fees paid.  Avoid the scenario where total service related expenses paid to a worker after e-day (not subject to the limit)  is proportional to the amount paid for worker services rendered during a many month campaign period.   For example, John Smith is paid $3,000.00 as a campaign organizer for 3 months during the campaign period and is then paid $3,000.00 to collect signs and clean up the office for 1 week of work after e-day.  It becomes obvious that after e-day John is being paid for campaign period work but it is being presented as after e-day work.  
  3. Un-Reasonable Campaign Surplus Erosion after e-Day.  As e-day passes, campaigns may find their financial position is surplus (meaning, after all expenses are or will be paid, there will be cash remaining in the bank account).  Cash surplus of a campaign is to be paid to the City.  Sometimes, there is an attempt to spend the surplus on unreasonable expenses after e-day in order to avoid paying out the surplus to the City.  Example, after e-day deciding the campaign needs a laptop computer, or pays a large amount to someone that is much greater than the current market value of services rendered in order to deplete the surplus and not remit the surplus to the City.  The optics on this would appear to an auditor and compliance auditor to misappropriate the campaign surplus, due to the City.  It is best to simply accept the provision of the MEA and pay the surplus to the City, and not wander into areas of non-compliance with the act. 
  4. Fundraising Event Vs Marketing/Promotional Event.  A fundraising event is an event held by the candidate for the purpose of raising funds.  Per the MEA, fundraising expenses are not subject to the spending limit and marketing/promotional events are subject to the spending limit.  With this in mind some may explore the possibility of mis-representing the costs of a marketing/promotional event as a fundraising event.  Due to this type of behavior new provisions s 88.19(4) were introduced into the MEA a few years ago that fundraising events are NOT “events or activities that are organized for such purposes as promoting public awareness of a candidate and at which the soliciting of contributions is incidental“.  Given this, some may wish to explore what degree of soliciting contributions is  “incidental”.  In the end, the person who explores this also greatly increases the possibility of explaining their interpretation to a judge and eventually having a judge decide what is “incidental”.  For this reason, it is best to work inside the spirit of this provision of the MEA and not push the boundaries of what is interpreted as “incidental”.  Any event that is a Fundraising event should be clearly promoted using words like “Fund-raising Event” in the main headings of communications.  It might even help to write something in smaller print below “This event, is held for the purpose of raising funds, for with the solicitation of contributions is not incidental”.
  5. Fundraising Staff Vs Voter Outreach Staff.  The expense for individuals paid to contact contributors for the sole purpose of raising funds is an expense not subject to the limit.  The expense for individuals paid to promote the candidate (voter calling/contact/outreach) are subject to the spending limit.  With this in mind, some may wish to mis-represent promotional callers as fundraiser callers.  As explained in point 4 above, the activity of soliciting contributions must not be incidental to be a fundraising expense.  If you do have a person dedicated to calling voters (usually donors that contributed in a previous campaign) to solicit contributions , do create a service contract that identifies their duties limited to calling for the primary purpose of soliciting funds, with little to no promotional content in the calling script..  Invoices should be created by these service providers that clearly reflect this also.