On Thursday the Tribune published a story detailing how the Rauner campaign purchased hundreds of thousands of dollars worth of gift cards and gave them to people who were helping to get out the vote without disclosing the recipients of the gift cards, in an apparent violation of campaign finance disclosure rules.
On their year end quarterly filing the Rauner campaign disclosed a payment to IDT Payment Services of $257,604.75 on 10/24/2014 for “GOTV Labor”. According to the Tribune this was for thousands of $25, $50 and $75 gift cards that were given to people helping with the campaign’s get out the vote operation. However this was the only disclosure related to the gift cards, the individual recipients of the gift cards were not disclosed, though not all would necessarily be required to be disclosed as itemized expenditures.
Larry Noble, a former general counsel for the Federal Election Commission told the Tribune that these gift cards should be considered monetary compensation, “If they’re giving them a debit card with value on it, that’s payment to these people. You can’t get around it,” he said.
However the Rauner campaign maintains that their single disclosure for IDT Payment Systems was sufficient to comply with Illinois campaign disclosure rules telling the Tribune “The campaign reported the gift cards correctly,” Sarah Clamp, a spokeswoman for Rauner’s campaign, said in an email statement. “The campaign is only responsible for reporting when the campaign makes an expenditure and did this by reporting the purchase of gift cards.”
The relevant section that appears to have been overlooked by the Rauner campaign is Section 100.70(c) of Board rules.
Section 100.70 Reports of Contributions and Expenditures
c) An expenditure to a payee who is in whole or in part only a conduit for payment to another, such as a political consultant, credit card issuer or Paypal, must include by way of detail or separate entry the amount of funds passing to each vendor, business entity or person receiving funds from the payment, together with the reason for each disbursement and the beneficiary of the disbursement. This provision shall not apply to a political consulting firm or political consultant, campaign worker, volunteer or political operative, etc., if the amount paid to that entity is less than $3,000 in aggregate during the quarterly reporting period. Nothing in this Section shall be construed to impose a reporting obligation on any person not otherwise required to report under Article 9 of the Election Code or to require the itemization of expenditures not otherwise required to be itemized under Article 9.
The conduits rule is what prevents campaigns from hiding the true recipient of expenditures by simply disclosing payments to an intermediary as was done with their disclosure of payment to IDT Payment Services. Most campaign finance compliance staffers quickly become familiar with this rule as it applies to credit card payments and payroll payments, forcing committees to disclose actual recipients of funds and not just show lump sum payments to either the credit card company or the payroll processing company.
The Rauner campaign should be familiar with the conduits rule having faced criticism previously for failing to abide by it with their previous payroll disclosures. In early 2014 Illinois Review reported that the Rauner campaign was not disclosing the the recipients of funds for payroll expenditures they were simply reporting lump sum payments to their payroll processing vendor Paylocity. Subsequently the State Board asked the Rauner campaign to file amended reports that complied with the conduits rule and the issue was resolved when they did so.
Here is the relevant section of the campaign finance statute governing record keeping for expenditures:
5/9-7. Records and accounts.
(1) Except as provided in subsection (2) the treasurer of a political committee shall keep a detailed and exact account of –
(c) the total of all expenditures made by or on behalf of the committee;
(d) the full name and mailing address of every person to whom any expenditure is made, and the date and amount thereof;
(e) proof of payment, stating the particulars, for every expenditure made by or on behalf of the committee. The treasurer shall preserve all records and accounts required by this section for a period of 2 years.
If the Rauner campaign followed the law on recordkeeping for expenditures then they should have a record of the recipients of these gift cards.
Not all of the transactions to the recipients of these gift cards necessarily needs to be itemized on the quarterly financial disclosure. Here is the relevant section of the campaign finance statute governing itemized disclosure of expenditures:
5/9-11. Financial reports.
(a) Each quarterly report of campaign contributions, expenditures, and independent expenditures under Section 9-10 shall disclose the following:
(6) the name and address of each political committee from which the reporting committee received, or to which that committee made, any transfer of funds in the aggregate amount or value in excess of $150, together with the amounts and dates of all transfers;
(7) the total sum of transfers made to or from the committee during the reporting period and not reported under item (6);
(12) the full name and mailing address of each person to whom expenditures have been made by the committee or candidate within the reporting period in an aggregate amount or value in excess of $150; the amount, date, and purpose of each of those expenditures; and the question of public policy or the name and address of, and the office sought by, each candidate on whose behalf that expenditure was made;
(13) the full name and mailing address of each person to whom an expenditure for personal services, salaries, and reimbursed expenses in excess of $150 has been made and that is not otherwise reported, including the amount, date, and purpose of the expenditure;
Any recipients of gift cards whose aggregate value was $150 or less would not have to appear in the itemized section of the expenditures disclosure, those totals should simply appear in the unitemized expenditures line item on the summary page. However for any person or political committee whose received an aggregate of more than $150 in the reporting period the Rauner campaign would be required to disclose those itemized expenditures.
On my very first campaign I learned this lesson the hard way, I filed some reports that didn’t follow the conduits rule and I had to go back and file amended reports. In speaking with the State Board staff at the time they told me that their emphasis was not on penalties it was simply to enforce disclosure. Once I filed those amended returns and the disclosure was proper the issue was closed. When the Rauner campaign faced the same issue with their payroll disclosures in early 2014 the matter was resolved once the campaign filed amended reports to comply with the conduits rule. The Board could take into account the past issue with the Rauner campaign and assess a fine but most likely an amended report will put the issue to bed. A Rauner staffer likely has some busy days ahead of them, it will be a lot of work to enter all of these transactions into the disclosure software but a lot of work is what the campaign finance rules require.
However if the Rauner campaign didn’t keep records of these gift card recipients then that could be a much different, and likely more difficult situation.