The Effect of Accounting Conventions
Where political parties are expected to publish their annual accounts, there may be great variations in the way this is done, see Campaign Expenditure Disclosures.
First, different accountancy rules will produce very different totals. For instance:
- if the total raised in a direct mail fund-raising operation is given net of costs, then the totals shown both on the income and expenditure sides of the party accounts will be significantly smaller than if fund-raising costs are included as expenditures and fund-raising income is include gross rather than net of costs.
- The same applies to accounting procedures concerning party publications.
- Where a political party owns the buildings it occupies and need pay no rent, should rent at notional commercial rates be included on the expenditure and income sides of the accounts?
- The accounts for a given financial year will be effected by the accounting conventions employed concerning payment dates.
Second, the totals will depend on rules about what items must be included in the accounts.
Finally, there may be considerable variations in the amount of detail shown in the accounts that must be submitted in different countries as well as in the sub-headings under which the accounts are shown.
To limit potential misstatements in the presentation of accounts, rules have been introduced in different countries regarding the methods by which the accounts must be drawn up and the form in which they must be published. Such rules have the advantage of real or apparent standardisation between different political parties. Their limitation is that they may demand divisions between income sources or between categories of expenditure that are somewhat artificial. For instance, it is unclear how significant is the distinction in German party accounts between membership 'subscriptions' and 'donations'.
Rules regarding the required procedures for submitting accounts may not be wholly clear from the relevant legislation. Therefore, it may fall to the regulatory body established to administer the regulations to offer advisory opinions about the format and the accounting conventions that the parties must use. It is no coincidence that some of the countries with the most precise reporting requirements for parties have major regulatory bodies, such as Elections Canada, the Australian Electoral Commission, and the U.S. Federal Election Commission.
Example of Regulations about the Format of Accounts
The following are among the rules set out by the Australian Electoral Commission: 53
'Gross figures only must be used (e.g. a fund-raiser which took $1,000 with costs of $750 for a net profit of $250 should have the full $1,000 disclosed under receipts and $750 disclosed under payments).
The return reports transactions on a cash accounting basis ... For example, a payment by cheque is not reported when the cheque is written but, rather, when the cheque has been presented and money has therefore actually changed hands.'
The same rules also grapple with the almost impossible problem of defining 'volunteer labour':
'Volunteer labour does not need to be disclosed. The donation of one's time by a member of the party is volunteer labour. The donation of time by a person who is not a party member is only considered volunteer labour where it does not constitute a service for which that person normally charges.
'For example, the donation of legal advice by a solicitor who is a party member is volunteer labour, which need not be disclosed or included in the party accounts, but the donation of legal advice by a solicitor who is not a party member is a gift-in-kind, which must be disclosed at the 'appropriate value' - normally the commercial or sale price of the service. If, however, a solicitor who is not a party members hands out 'how to vote cards' that does constitute volunteer labour because it is not a service for which that person normally charges.' (p. 28.)
Reporting Burden on Local Party Organisation
If party accounts are to be comprehensive, they will need to include not only the finances of national party organs but also of regional and local associations as well. The finances of the headquarters organisations of national political parties will clearly need to be approved by professional accountants.
By contrast, small units of an organisation run by local volunteers - ward branches in cities or party organisations at village level - may find it nearly impossible to adhere to the same formalities. The funds of local party branches will frequently be so small that an accountant's fee will eat up a large proportion of their meagre income. Moreover, if the national headquarters is required to make a comprehensive financial return, including information from low-level party organisations, the disclosure rules will lead to a possibly undesirable centralisation and bureaucratisation of parties.
Possible remedies for this problem are, first, to require lower accounting standards from local party organisations. For instance, less onerous accounting standards may be required from party organisations with an income below a threshold. The Lortie Commission recommended that simplified requirement should apply to party organisations with an annual income and expenditure less than CAN $5,000.54
A second remedy is to remove from the national party organisation the responsibility for gathering statistics from local party organisations. The disadvantage here is that the burden of collecting statistics from a multitude of local and frequently amateur local committees will fall on the regulatory body.
Draft Only
