Trust, But Verify

No one ever hires a campaign consultant thinking that the consultant might embezzle from the committee.  And yet it happensAgain.  And again.

Following a spate of high-profile political embezzlement cases, the Federal Election Commission and campaign finance lawyers rightfully are placing renewed emphasis on the FEC’s recommended best practices and internal controls as an important safeguard against embezzlement.  Moreover, if adopted and implemented by the committee, the internal controls provide a safe harbor for an innocent treasurer who otherwise could be held personally liable as a result of an embezzlement that happened on his or her watch.

These recent embezzlement cases point up more than the importance of adopting the FEC’s best practices and internal controls, however.  They also demonstrate the need to run a political campaign like a business—and in the case of many House and Senate campaigns, these are multi-million dollar annual businesses.

It’s difficult to envision any new business forming up and launching a product or service into the marketplace without first taking on some type of corporate form to shield the individuals behind the company from personal liability.  But a quick review of public records indicates that a vast majority of political campaigns decline to undertake this simple step.

It’s similarly hard to imagine a company hiring an employee who immediately will be privy to reams of sensitive information, or retaining a vendor to provide hundreds of thousands of dollars in services, without putting a contract in place to memorialize specific points of the parties’ agreement and to protect the company’s assets and interests.  Campaigns routinely hire employees and retain vendors, however, and expose them to the campaign’s research, strategic, financial and operational information, without putting so much as a confidentiality agreement in place.

What could go wrong?  How about unlimited personal exposure on the part of the candidate for the committee’s debts and liabilities, for starters?  Karl Rove taught that lesson to, of all pupils, a former Attorney General of the United States, Dick Thornburgh, after Thornburg failed to incorporate his U.S. Senate campaign.  Still not convinced?  How about having your campaign account frozen by a federal bankruptcy court to satisfy the candidate’s personal and business obligations?  Georgia State Representative Jill Chambers learned that one the hard way after she, too, neglected to incorporate her campaign committee.  (An abominable decision by the bankruptcy court in that case, by the way.)  And then, of course, there are the embezzlement cases, in which campaign treasurers could be held personally liable by the FEC because of diversions of funds they had nothing to do with.

Personal relationships are foundational to politics.  Political candidates tend to surround themselves with people they know and trust.  Florida Congresswoman Corrine Brown probably trusted her fundraisers, too.  Then they sued her for $44,495.

Perhaps candidates who decline to incorporate their campaigns are looking to save a bit of time and money for another round of GOTV robocalls.  Perhaps campaigns that fail to use contracts don’t want to risk offending trusted advisers, vendors and consultants by making them sign a legal document.

Whatever the reason, it’s bad business practice. And in an age when the average House race costs $1.163 million and the average Senate race costs over $8 million, there’s a lot at stake.  So candidates, heed the old Russian proverb and “trust, but verify”:  incorporate your campaign committees; implement the FEC’s best practices and internal controls; and sign contracts with your employees, consultants and vendors.  Your campaign is, after all, a business—with a bank account, office space, employees, assets and liabilities—you should run it like one.

Copyright 2011 – Chris Ashby and Ashby Law PLLC – All Rights Reserved.