The Basic Ins and Outs of the "In and Out" Controversy

Cross-referencing: Laws of Government, Ch. 3


By the time of this writing, the so-called "in and out" controversy continues to percolate as a possible election theme, fuelled by charges levelled against several Conservative Party fundraising luminaries under the Canada Election Act.  The "in and out" matter is discussed in LofG, but what follows is a basic primer and update.


Party and Candidate Reimbursements


As discussed in LofG, ch. 3, both parties and their candidates benefit from a partial reimbursement of their election expenses. For a registered party to qualify for the reimbursement, it must have won the support of at least 2 percent of votes cast in the election, or 5 percent of votes cast in the electoral districts in which the party ran candidates. If a party achieves either threshold, it is eligible to be reimbursed for half of its election expenses.


For candidates, the threshold for reimbursement is 10 percent of the votes cast in their electoral district. Candidates who achieve this threshold are eligible for a reimbursement of 60 percent of their election and personal expenses. Roughly half of the candidates who run in a general election are eligible for reimbursement, with most of these candidates running for the larger parties.


The In and Out Process


According to many political insiders and observers, parties often transfer expenses to their candidates’ campaigns, in part because the candidate election reimbursement is at a higher rate than the party rate (although this is less the case today than historically), and in part as a means to spend more than would otherwise be allowed by the party’s spending limit.


This practice came to light in a very colourful way following the 2006 election.  During the campaign, the Conservative Party was coming close to its own election spending cap.  It encouraged local candidates who had room left in their own expense limits to participate in a "regional media buy".  Candidates agreed to commit a certain amount of money to this effort.  In fact,  this money was (basically immediately) reimbursed by the Party -- that is, money was moved "in and out" of the candidate and Party coffers. 


The money transferred from the Party to the candidate was then reported to Elections Canada as an local candidate campaign expense, with candidates applying for their 60 percent reimbursement.  In this manner, the Conservatives received a) a larger reimbursement than would have otherwise been the case from the taxpayer and b) were able to roll together candidate and party spending caps in a matter that allowed more money to be spent by the collective candidate/party entity than the party itself would have been able to spend.


When the agency investigated, it found the money was actually spent by the national party, despite being routed through candidate campaigns.  Having deemed the expenses to be those of the Party, Elections Canada denied the candidate reimbursement.


The Party denied any wrongdoing, and argued that all major parties carry out this sort of activity.  It sued Elections Canada, seeking the reimbursement.  The party prevailed at the Federal Court, but then lost in March at the Federal Court of Appeal.


The Court of Appeal held, in essence, that the Chief Electoral Officer can in fact audit and verify election expenses claimed by candidates -- that is, he or she need not accept then at face value.  This is obviously a happy conclusion, as any other holding would render Canada's chief electoral watchdog a rubber stamp, to mix metaphors.


Second, the Court concluded that the Chief Electoral Officer's conclusion in relation to the in and out practice was reasonable on its merits.


The Charges under the Canada Election Act


The so-called in and out scheme also prompted the commissioner of Canada elections to investigate whether the Conservatives’ bookkeeping was designed to circumvent the party spending limit in contravention to the Elections Act.


In late February, the commissioner laid four charges against the Conservative Party and some of its agents and fundraisers alleging, in essence, that the in and out scheme was a intentional effort to circumvent the Party's spending cap in the 2006 election, and the party falsely reported compliance with this spending cap.


While the Conservative Party seems to be suggesting that the whole in and out affairs is an accounting dispute, these charges are criminal in nature, and if convicted there are criminal penalties -- the human beings who have been charged could be sentenced to a year in prison if convicted.