Preparing for victory in 2014 - Part 2 of 3

5 steps to protect your campaign from incurring unauthorized expenses:

Summer is the perfect time to learn how to set up an efficient, scalable campaign treasury office. But forget summer school, we’ve put together a three-part Campaign S.U.N. Series. It contains the practices CMDI has developed from our experience working with 13 presidential campaign committees, including every GOP presidential nominee since Bob Dole.

S.U.N. stands for:

S is for “Structure”

Establish and document strict, internal controls on receivables and payables management at the beginning.

U is for “Unauthorized/Undisclosed/Unaccounted” (you are here)

The three most costly infractions that you avoid through best practices.

N is for “Neutralize”

Neutralize the FEC and your opponent’s chance to embarrass or penalize you when an internal audit reveals an error.

Now that we know now to setup the structure of your campaign treasury office (Sun Series part 1.), the second concept we’ll focus on is how to avoid unauthorized and/or undisclosed transactions. Remember, if a transaction hasn’t been authorized or it isn’t disclosed, then it is potentially illegal or could raise a red flag with the FEC should they uncover it.Here are the five steps you can take to protect your campaign from incurring unauthorized expenses:

1. Prohibit in-kind contributions

In-kind contributions are really both an expense and a contribution that take place simultaneously. To make matters worse, in-kind contributions are rarely approved by your treasurer in advance of the gift’s acceptance. A policy of accepting in-kinds greatly increases your risk of inadvertent corporate contributions. In many cases, treasury and/or compliance teams are not made aware of in-kind transactions, therefore the transactions go undisclosed. Senator John Ensign’s campaign recently paid a $32,000 fine for failing to disclose a substantial in-kind donation. Also see The In-Kind Political Donation Trap. 

2. Require approvals for each expenditure

Here is a simple sample process for an approval-structure that can be suited to your campaign operations:

Expenses $5000 or less:	Approval required by Division Director
Expenses $5000 to $100,000:	Approval required by Division Director and C.F.O.
Expenses over $100,000:	Approval required by Division Director, C.F.O. and Campaign Manager

3. Implement an ongoing self-audit process

As discussed in part 1 of this series, it is best practice to make one of your staff the File-Manager to act as your in-house Audit Response Liaison(s). It is your File-Manager’s responsibility to serve as a final check on your expense and receipt-documentation requirements. Your File-Manager acts as your expenditure backstop and will alert division directors if unauthorized expenses should rear their ugly heads. The File-Manager’s expense review should be before each filing at the very least and more frequently depending on the number of expenses your campaign is incurring.Rep. Michele Bachmann (R-MN) recently announced both her retirement from Congress, as well as the fact that her campaign has been fined an $8,000 penalty for failing to disclose over $200,000 in contributions as well as a portion of its expenditures. While the Bachmann campaign has reported that the discrepancies were reported to the FEC following its own, internal audit, it is clear that post-election audits are not a proactive method to avoid penalties. 

4. Implement an ongoing compliance review for all fundraising channels

Campaigns must combat the issue of unchecked contribution flow from all sources of funds raised. Typical channels include online gifts, checks and credit card transactions at events, direct mail, phone banking, bundlers, the selling of swag, etc. In all cases, these gifts MUST comply with the FECs contribution rules. A couple of the most obvious channel issues include:

• Online Donations - Serious campaigns must employ the use of political online fundraising tools such as WidgetMakr, which are built specifically to comply with federal campaign finance law. Very frequently, those new to political fundraising with use a non-political-specific Google/Paypal/Yahoo!/etc. donation form and end up having to return the gifts because they did not capture the donor data required for FEC disclosure reports. Even some of the outmoded politically-oriented online solutions like Piryx/Rally do not provide adequate or timely return-reports that allow for properly reconciled, accurate contribution reporting.
• Bundlers/Volunteer Fundraisers - Contributions collected, “bundled” by your volunteer fundraisers requires that your finance team and their volunteers are fully educated on current FEC contribution rules. This is even more important if your fundraisers are also lobbyists. Donations solicited by lobbyists have additional FEC filing requirements over donations from “civilians.”Knowing basic fundraising rules should be required by the C.F.O. or treasurer, as well as any campaign manager. One recent infraction, stemming from (what we’ll assume was) a common lack of knowledge concerning campaign finance law, involved a bundler for Sen. Harry Reid (D-NV) who provided “bonuses” and other funds to staff so that they could then contribute generously back to the Nevada senator. Naturally, questions are raised about whether or not there was illegal intent. Regardless of Reid’s organization’s guilt or innocence in this case, the senator has lost credibility as someone capable of managing campaign finances.

5.Hire professionals

Campaigns are like making a movie or staging a Broadway show. Lots of professionals come together for a project and then move on to the next project 2 or 4 years later. If you are investing your own funds to create that next blockbuster, are you going to hire the directors, editors and actors who have never done a movie before? Are you going to figure out how to do the lighting and special effects yourself?Considering the risk of not implementing systems to comply with the ever-changing and expanding FEC regulations, it is most cost effective to engage professionals, like those at CMDI, to manage your campaign finances and ensure that all of your disclosure reports are filed accurately and on time. A professional compliance team will work to ensure 100% compliance, or else they wouldn’t be professionals. They will also train you in the best-practices for utilizing tools like Crimson to automate much of the compliance work required in preparation for filing disclosure reports.As we approach 2014…and 2016, remember that the candidate that is most efficient with their resources has a huge competitive advantage. Establishing automated compliance and fundraising processes now is one of the best uses of your resources as the 2014 political cycle begins to kick-off.Next:

N is for “Neutralize”

Neutralize the FEC and your opponent’s chance to embarrass or penalize you when an internal audit reveals an error.