The In-Kind Political Donation Trap

As the barter system went out with the advent of money, though it may be making a Internet powered comeback, it does not make sense for modern political committees to use bartering, a.k.a. “in-kind” contributions, as a form of fundraising.In-kinds are one of the most common campaign compliance infractions and can present expensive problems for campaigns and their treasurers. It is difficult to understand why campaigns would accept in-kind contributions instead of implementing internal controls that disallow this outmoded method of “giving.”In-kinds are fairly exclusive to campaign-event & media costs (catering, entertainment, equipment rentals, advertisements, etc.) and do provide a donor with the chance to build a contribution history that yields event invitations, photo-ops, Inaugural Ball tickets, etc. However, when in-kinds are not disclosed on time, or when it is simply lost on a campaign that an in-kind has occurred due to a lack of knowledge about what qualifies as an in-kind, the opportunity to remain in compliance is lost, and the FEC wins.The value of an in-kind contribution made to a political committee (fair market value) counts against the contribution limit of its donor and must be reported by the recipient committee. When determining whether to itemize an in-kind contribution, a committee must treat it like a monetary contribution.The only difference is that the amount of an in-kind contribution must also be reported as a part of the committee’s total operating expenditures. (This prevents a campaign from showing more cash-on-hand than it actually has, because at the time the in-kind gift is made, the gift is also “spent.”)The FEC recently snatched $32,000 from former Senator John Ensign’s campaign committee for accepting an in-kind contribution from the Senator’s family that was not properly identified by the campaign and reported as such. While that was an example of an extraordinary circumstance that is bound never to repeat, the situation also exemplified the need for a better understanding of in-kinds.Even if a campaign chooses not to accept in-kind contributions, it must always be vigilant against outside sources introducing what turn out to be in-kind donations into the mix. Since we know that corporate contributions to federal campaigns are illegal, we know that in-kinds are not permitted from corporations either. This includes, for example, a campaign staffer/volunteer using the photocopy or fax machine at his/her place of employment to perform campaign-related work, even after work-hours. Even meetings or phone calls that take place in an office outside of the campaign must be billed to the campaign so that an in-kind contribution from the outside company is not rendered.

Top reasons in-kind contributions should be avoided:

1. In-kind gifts take cash management responsibilities from campaign managers and puts them in the hands of fundraisers & donors.Experts in campaign management would agree that budget and strategy is best left to professional campaign staff and the candidate. Spending decisions and approvals should naturally come from the directors of the campaign. Accepting an in-kind contribution is an end-run around these important cash management systems and often leads to a bad-expense when an in-kind “contribution” is accepted.2. Don’t give your opponent political ammo or help the FEC enforce their own rules.
One egregious example of an illegal, corporate in-kind that sought to heavily influence the outcome of an election occurred in the 2008 presidentials. The New York Times discounted their advertising rates by nearly 2/3 for an ad purchased by MoveOn.Org.Frontrunner at the time, Rudy Giuliani, understandably demanded the same ‘discount,’ but luckily, his campaign Treasury Office, supported by the compliance and software team at CMDI, advised the former Mayor of the illegal nature of the Times’ discount to the leftist publication, MoveOn.Org.While in-kind infractions are more common than others, and often go unnoticed by the FEC, when the story becomes news, it shines a negative light on the credibility of the candidate who cannot seem to manage the internal, financial operations of their campaign.To most people, headline-readers, it just appears as though a campaign has taken (illegal) money and tried to hide it. It is ideal to seek out service from the experts in FEC compliance, and purchase Republican Software, such as Crimson, to support proper disclosure of in-kind contributions (and therefore expenses) by one simple piece of data-entry that ensures in-kinds are reported as directed by the FEC as both receipts and expenses.3. Date of receipt is most often (technically) incorrectly reported. 
When a campaign receives a contribution check, it deposits that into the bank within 10-days, records the donor information, including the gift-receipt date, and reports it on the next appropriate FEC report. When an in-kind is made, it is often at an event, managed by fundraising staff, who themselves may not be aware of any/all in-kinds that are being made. (Wine service, linen rentals, etc).

 For example, the day of the event is the date of receipt for a catering in-kind, or bartending/valet/etc. in-kinds – the services (contribution) are being rendered that very day. The date a contribution is made is the date the contributor relinquishes control over it per the FEC's 110.1(b)(6). So, when a notice of in-kind contribution shows up at the campaign office weeks later, the chance to report the gift on the correct date may have come and gone, prompting the need for an amended disclosure report to the FEC.4. In-kinds are not always recognized as such.As in the Ensign case, funds were introduced to the benefit of the committee as it functioned like an everyday-workplace, as an average small business; but not to its political benefit; and it did not result in furthering the status, win-potential or financial well-being of the political campaign.To avoid a “Crouching Tiger, Hidden In-Kind” scenario, treasurers must enforce internal controls at the campaign office that allow for their accounting of:

• Event Dates/Locations: Are the hosts US Citizens, or is the free use of their home an illegal, foreign (in-kind) contribution? Back during the 2008 Clinton campaign, watchdog group Judicial Watch, accused the Clinton campaign of accepting an illegal, foreign in-kind when Elton John, a British citizen, performed at her fundraising event. The FEC later ruled that foreign nationals can volunteer their time; however, this is not the kind of distraction the Clinton campaign needed as it struggled against Obama’s surging popularity.
• Invoices paid pre-event: Facility Rental & Catering Deposits, etc.
• Invoices post- event: Food / Beverages / Catering Staff / Valet Staff / Entertainment / Equipment / Decorations
• Personnel records and salary payments and consultant contracts and payments: It is especially important to structure consultant contracts so that payments are due, either: 
1. On a set day of the month, 
2. Once per quarter, or 
3. As indicated by due-date on each invoice

This will alleviate the concern that an unpaid vendor is making an illegal, corporate in-kind by not getting paid regularly; the contract determines when the vendor should be paid, and if payments are late, the past-due bills simply belong on Schedule D, the “Debt Schedule,” so as to not be considered an in-kind of services.Corporate in-kinds occur most frequently because the campaign treasury does not know what is going on from day-to-day in the fundraising staff’s schedule. The “lunch meetings” or “conference calls” at the candidate’s brother’s real estate company’s offices may qualify as in-kind contributions, or even worse, as illegal, corporate in-kinds.Event staff can hardly be expected to turn away a well-intentioned gift of wine to be served at a fundraising event. The event hosts simply think they are being gracious by providing the extra beverage.Staff must account for this as an in-kind to stay in legal compliance. Even if this example is a minor step out of line internally for the campaign finance staff, they must try to inform in-home event hosts of the implications of such in-kinds, and the practical use of the in-home exemption which allows all adult residents of the home to contribute up to $1000/each in event-goods and services which is not counted against their giving limits. Now that’s a win-win scenario, which avoids the common pitfalls of in-kind contributions.