Dangers and Pitfalls

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.