While bartering may be making an Internet-powered comeback, it still doesn’t make sense for modern political committees to use an exchange of goods or services, known as in-kind contributions, as a form of fundraising.
In-kinds are one of the most common campaign compliance infractions so it’s difficult to understand why campaigns would accept this form of contributions. Just last month, the Federal Election Commission fined former Sen. John Ensign’s (R-Nev.) campaign committee $32,000 for accepting an in-kind contribution from the senator’s family that was not properly reported by the campaign. 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.
Here are the top reasons in-kind contributions should be avoided:
1. In-kind gifts take cash management responsibilities from campaign managers and put them in the hands of fundraisers and donors.
Budget and strategy is best left to professional campaign management staff and the candidate. When a campaign’s finance team accepts an in-kind contribution, it’s an end-run around critical cash management systems and often results in a bad expense.
2. Don’t give your opponent political ammo.
An in-kind donation can easily come back and bite you. During the 2008 presidential primaries, the New York Times discounted their advertising rates by nearly two-thirds for an ad purchased by MoveOn.org. Then GOP-frontrunner 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 liberal publication, MoveOn.Org.
Giuliani was able to turn the Times’ in-kind donation into an example of the newspaper “selling out” to the Democrats.
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.
3. Date of receipt is most often incorrectly reported.
When a campaign receives a contribution check, it deposits it 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 such as wine service, linen rentals, etc.
Political events are a very common source of in-kind receipt issues. For an event, the day of the event should be the date of receipt for catering, bartending or valet in-kind services. This is because the services (contribution) are being rendered that very day. 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, but not to its political benefit. It didn’t result in furthering the status, win-potential or financial well being of the political campaign. Treasurers must enforce internal controls at the campaign office that allow for their accounting of:
Event Dates/Location: Are the hosts U.S. Citizens, or is the free use of their home an illegal, foreign (in-kind) contribution? In 2008, the watchdog group Judicial Watch accused Hillary Clinton’s campaign of accepting an illegal, foreign in-kind when Elton John, a British citizen, performed at a 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 then-Sen. Obama’s surging popularity.
- Invoices paid pre-event: Facility rental and catering deposits, etc.
- Invoices post-event: Refreshments, catering staff, valet staff, entertainment, equipment, and decorations.
- Personnel records, salaries, and consultant contracts and payments: It’s especially important to structure consultant contracts so that payments are due, either:
1. On a set day of the month.
2. Once per quarter/upon receipt.
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. If payments are late, the past-due bills simply belong on Schedule D, the “Debt Schedule,” so as to not be considered service in-kinds.
Odds are no matter how much you try to avoid accepting in-kind donations, they will probably occur. Campaign staff must expect unanticipated in-kinds to occur and to be ready to account for them.
Corporate in-kinds occur most frequently because the campaign treasury does not know what is going on 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. However, staff must account for this as an in-kind to stay in legal compliance.
That is why in-kind reporting exists, to disclose these transactions properly, not necessarily to open a new avenue for fundraising. Even a wine gift 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 profitable in-home exemption, which allows all adult residents of the home to contribute up to $1,000 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.
Erik currently runs sales and marketing for CMDI, the largest Republican fundraising technology platform. Prior to joining CMDI, Erik founded numerous fundraising technology companies whose products have raised over $300 million for hundreds of political and cause-based organizations.