Protecting your campaign committee from fraud

Protecting your campaign committee from fraud
The safeguards in place for your political committee may not be good enough.

Conventional wisdom would have you believe that misappropriation of campaign funds in the political world is a rare occurrence. But the truth is that no one really knows how widespread the misappropriation of funds really is. It’s not something that is widely reported and it can be difficult to detect.

In the 2012 cycle alone, our firm exposed one instance where a former campaign staffer stole a checkbook and wrote himself “bonus” checks. In another instance, we took over the compliance operation of a campaign that had been a victim of a staffer that misappropriated funds. Preventing this sort of malfeasance—or at least catching it quickly—is doable, assuming you have the right protections in place.

The Basics

The Federal Election Commission’s website offers some best practice guidelines for committees to help protect against misappropriation of funds. They offer some sound advice and are a good starting point for any political committee.

All bank accounts must be opened in the name of the committee using the committee’s Employer Identification Number (EIN). The FEC recommends bank statements be reviewed and reconciled with accounting records once per month. (That’s the bare minimum. Our firm, for example, reviews the bank registers of clients every single day.) Checks in excess of $1,000 and wire transfers should be authorized in writing by two individuals and those two individuals should be clearly identified by the campaign’s internal policies. An individual who does not handle the committee’s banking should receive all incoming checks and monitor all incoming receipts. Carefully control committee credit and debit cards. You can even ask the credit or debit card issuer to place dollar restrictions on the cards.

The FEC’s guidelines are a good first step when it comes to protecting your campaign against misappropriation of funds. Luckily for campaign treasurers and campaign staff, however, modern technology has advanced to the point where campaigns can institute plenty of additional protections against unscrupulous staff.

Our firm utilizes technology to provide clients with something we call “compliance under glass.” It’s a process that ensures key campaign decision makers—campaign managers, chiefs of staff, finance directors and treasurers—can review key financial documents quickly and efficiently without digging through file cabinets or waiting for banks to send you copies. But you don’t have to be a client of our firm to institute your own version of compliance under glass. Here are a few things we do that your campaign can implement.

Reconcile Every Day

Your compliance person should sign in to your campaign bank account every day and reconcile the bank register with your accounting records. The compliance person can see which checks you wrote and which ones cleared. He or she can review the debit card charges that cleared and match them against receipts submitted by campaign staff. Doing so can uncover fraud that may be going unnoticed.

Last year, our firm took over the account of a new client and within 36 hours of signing the contract we signed into the campaign’s bank account and noticed several suspicious checks. A handful of checks were written just that month to a former campaign staffer for over $10,000. “Bonus” was written in the memo line of each check.

As it turned out, the checks written by the campaign staffer were stolen at the end of 2010 and the check numbers were wildly out of order. We thought it was odd that one staffer had received multiple bonus checks in the span of a few weeks, so we brought the issue to the attention of campaign leadership. Charges were filed that week and the former staffer was prosecuted and the bank returned the funds.

Be Vigilant

Push campaign staff to submit receipts for debit and credit card purchases. Yes, you will see the charges when you sign into the bank account, but as Election Day nears disbursement volume increases exponentially. You don’t want to be wasting time hunting down staff to ask about specific charges. Set up protocols and processes for staff to follow when submitting receipts.

Financial Manager Tool

Turn on and use the Financial Batch Manager tool in your finance database. NGP has this tool and every other finance software program should have something similar. The financial batch manager will require you to assign a “batch number” to each group (or batch) of contributions that you import into your finance database. For example, we batch our checks according to deposit. That way, a batch of checks deposited together should match up with a deposit slip for that batch and then a copy of the batch report can be run at any time and compared to the copy of the deposit slip and the copies of the deposited checks. This system will make it very easy to find checks written to you.

Match Disbursement Codes

Create disbursement codes that match your campaign manager’s budget categories. Campaign managers all have their own budget templates that they develop and cherish. Ask your campaign manager for their budget template. You don’t even need to see the actual budget to get this one right.

Create codes in your finance database or quick books that correspond to the manager’s budget categories. When checks are written (or debit and credit cards are used) add the appropriate disbursement code when you enter the disbursement. This system will provide you with a wonderful check and balance that your manager will come to love and appreciate. The manager can maintain the privacy of their budget if they wish and use your disbursement reports to track their budget categories.

This system will help you protect against misappropriation of funds because the manager will see disbursement reports by budget line item and be able to spot anything that seems out of the ordinary—checks written to a dummy corporation created by a dishonest staffer, for example. Run disbursement reports and review them regularly with your campaign manager or chief of staff.

Additional Protections

The campaign should not have multiple checkbooks floating around. Of course, a campaign may have multiple bank accounts. The FDIC ensures deposits up to $250,000 so campaigns with large balances may want to break up funds among multiple accounts to ensure FDIC insurance protections. However, the FEC requires campaigns to have only one operating account. Make sure you have one operating account with one checkbook.

Pay very close attention to ensure that checks are written in order, and flag any checks that are out of order by a large number range. If check 101 and check 609 hit the check register within a close time period that should immediately raise a red flag. Ultimately, vigilance coupled with consistent systems and processes for reviewing campaign finance and disbursement data are the keys to protecting your campaign from misappropriation of funds. Trust but verify, and review data regularly.

Mark Warren & Jennifer May are founders and partners at Next Level Partners, a Democratic campaign finance compliance firm.

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