The impact of enforcement on
compliance
Timely submission
of annual accounts
2.7 Political
parties are required to submit their annual accounts to the Commission
by no later than 4 months after the party's year end for parties
with both income and expenditure below £250,000, and no later
than six months and seven days for parties with both income and
expenditure over £250,000. We analysed the available data,
which show that a high proportion of annual accounts are submitted
within one month of the deadline. There was a marked increase
in 2005-06, followed by some slippage in 2006-07 (Figure 2).
The measure of 'within one month of the statutory deadline' was
the Commission's Key Performance Indicator at the time, and meant
one month past the statutory deadline. The Commission now measures
compliance against the statutory deadline itself with no grace
period and in 2007-08, the proportion of statements of accounts
submitted on time was 84%, which shows an improvement in performance.
2.8 In 2007,
the Commission began to impose penalties for the late filing of
annual accounts. In the first year, the Commission imposed penalties
only on parties and constituent parts of parties (accounting units)
with income and expenditure over £100,000. In 2008, the
Commission imposed penalties on all those bodies which failed
to file timely accounts. The fall in compliance in 2006-07 could
be related to the fact that a number of parties which had filed
a series of nil returns and had thus become exempt from filing
quarterly returns mistakenly believed that they were also exempt
from filing an annual statement of accounts (see 2.9 below).
Timely submission
of quarterly returns of donations
2.9 Section
62 of the Act requires parties to make quarterly returns of donations.
The Commission started imposing fines for non-compliance with
donation reporting requirements in 2007, and has taken steps to
clarify the reporting obligations of the parties. The Commission
also sends parties reminders of filing deadlines each quarter,
and includes information about late filed returns in its quarterly
donation and loan press releases. The recent improvement in the
rate with which parties submit their quarterly returns on time
(figure 3) could be attributed to these actions.
The fact that some parties who do not receive donations are now
exempt from filing quarterly returns, as a result of legislation
in the Electoral Administration Act 2006, may also be a contributing
factor. Under the 2006 Act, a party that submits four consecutive
quarterly nil returns is exempt from further quarterly returns
until they have a reportable donation or loan.
Figure 3: Percentage
of quarterly returns received by the Electoral Commission less
than one month late
Source: NAO
analysis of Electoral Commission data
Late reporting
of donations by political parties
2.10 Although
the legislation carries financial penalties for the late submission
of quarterly returns, which are required to include details of
all reportable donations received during the relevant period,
there are no civil penalties if a report omits reportable details.
The only remedy in that case is referral for consideration of
a criminal offence, which is disproportionate in the case of administrative
errors.
2.11 The Commission
has referred to the late reporting of individual donations by
political parties in its press release for quarterly returns for
several years. In 2008, the Commission also wrote to parties who
reported late donations seeking an explanation and enquiring about
measures the party intended to put into practice to avoid further
non-compliance, particularly for the parties' central offices.
Figure 4 shows the total value of late-reported donations
by all parties.
2.12 The number
of donations reported late by the central offices of political
parties however has decreased recently, which may be a result
of the Commission pressing parties on this issue, though recent
figures are also depressed because they do not include recent
donations not yet reported. The Electoral Commission told us
that all donations reported late in Quarter 3 2008 were from constituent
parts of parties (accounting units under the Act) which were often
staffed by volunteers.
2.13 The Commission's
practice of commenting on late reporting of donations that should
have been included in the return for an earlier quarter is the
only deterrent, short of pursuing criminal action, available for
the submission of incomplete reports of quarterly donations by
political parties. These details are published on its website.
The deterrent effect is limited. The Commission has commented
repeatedly on this problem, and with some improvement in reporting
on time.
2.14 The Commission's
new approach is to reference the accounts received to donations
reported on a quarterly basis and identify discrepancies. The
Commission is also starting to develop its risk based approach
further by identifying parties and their constituent parts (accounting
units) with high levels of income and expenditure, or constituencies
where high levels could be expected (e.g. target seats for the
parties).
Return to donors
of impermissible donations
2.15 The Act
lays down that parties must return impermissible donations to
donors within 30 days. The register of donations (from 2001 to
December 2007) to political parties on the Commission's website
includes 17 impermissible donations received by parties and returned
to donors (or, in one case, to the Electoral Commission) outside
the statutory period of 30 days. It also includes 4 donations
from unidentifiable donors: 3 were returned to the agent from
whom they were received and one to the Electoral Commission.
2.16 In 2007,
the Commission began to seek forfeiture of an amount equal to
the value of impermissible donations including those that were
returned beyond the 30 day period. Since then, amounts equal
to two donations, one for £500 and the other for £1,675,
have been voluntarily forfeited despite having been returned to
the donor.
Rules on the
acceptance or return of donations
Where— (1)
(a) a donation
is received by a registered party; and
(b) it is not immediately
decided that the party should refuse the donation,
all reasonable
steps must be taken by the party to verify or ascertain the identity
of the donor, whether he is a permissible donor, and (if that
appears to be the case) all such details in respect of him as
are required by virtue of paragraph 2 of Schedule 6 to be given
in respect of the donor of a recordable donation.
(2)
If a registered
party receives a donation which it is prohibited from accepting
then the donation, or a payment of an equivalent amount, must
be sent back to the person who made the donation or any person
appearing to be acting on his behalf within the period of 30 days
beginning with the date when the donation is received by the party.
Source: PPERA
section 56
2.17 The Commission's
decision to seek forfeiture of amounts equal to the value of impermissible
donations returned to their donor after the 30 day window is in
keeping with the Commission's decision to be more robust in its
approach to compliance. Our analysis of the donation returns
also shows that while some parties report a number of impermissible
donations, others do not. The Commission conducts permissibility
checks on donations reported in quarterly returns and regularly
assesses whether impermissible donations are being reported.
Flexibility of sanctioning options
2.18 The Macrory
Report emphasises the need for sanction regimes to be flexible
and to take account of circumstances, so as to be proportionate.
Reasons vary for political parties' late submission of required
information to the Commission. The penalties cannot be flexed
to take account of the circumstances of the breach or the size
of the party, as the choice is simply to seek to recover the fine
or not. This lack of flexibility then leads to outcomes explained
below.
2.19 Because
there is no provision under the Act to take into account the circumstances
and seriousness of the offence in determining the level of the
fine imposed on political parties for late reporting, there is
no flexibility in the sanctions available. In circumstances where
the Commission considers that the only sanctions available for
late reporting by parties are disproportionate, it does not seek
to recover the civil penalty set out in the Act.[19]
It would for example, refrain from doing so where late reporting
by a party is a one-off occurrence attributable to operational
difficulties or simple error; or where a quarterly report of donations
is made on time but is incomplete, and the donations missing from
that report are reported in a subsequent quarterly report. Repeated
and habitual late reporting by political parties, and where there
is evidence that a party is attempting to conceal information
deliberately or delay its public release, would attract a different
response and the Commission would recover the penalty.
2.20 In 2007,
the Commission issued 154 penalty notices for late submission
of statutory returns. The value of these notices amounted to
£112,150. For the reasons set out in paragraph 1.16, 123
of these penalties were waived because the majority of the parties
to whom they were issued (125 parties in all) proved to be inactive,
and took the opportunity to de-register, or to file a nil return.
Nil returns are checked by the Commission by comparing them against
Statements of Account submitted by parties. Of the remaining 31
penalty notices, the Commission received payment on 13 and wrote
off 18.
2.21 In the
fixed scale of administrative fines available to the Electoral
Commission to enforce the Act, the amount of the fine depends
only on the degree of lateness of the submission of accounts or
quarterly reports of donations or loans. Where the Commission
decides to recover a fine, it has no flexibility but to seek the
level of a fine imposed by the Act, irrespective of a party's
income and assets. In practice the Commission tends not to levy
fines on very small parties.
2.22 The Commission
has a policy on how it handles complaints and on when it will
apply sanctions. The policy on complaints handling and investigations
is on the Commission's website. The policy on when it will apply
sanctions has been sent to all political parties but is not on
the Commission's website. Best practice laid out in the Hampton[20]
and Macrory[21]
reports says that policies should be shared with all interested
parties as an aid to compliance, but especially with those subject
to regulation. The Commission's approach to enforcement and sanctions
is focussed on larger parties, where it believes the risks lie,
but it informs all political parties of changes to its approach
on enforcement action.
15 http://www.hm-treasury.gov.uk/media/7/F/bud05hamptonv1.pdf Back
16
http://www.berr.gov.uk/files/file44593.pdf Back
17
The Funding of Political Parties in the United Kingdom (Cm 4057,
October 1998) Back
18
Professor Richard B. Macrory, Regulatory Justice: Making Sanctions
Effective, Final Report, November 2006. Back
19
For example in press releases of 24 February 2006 (http://www.electoralcommission.gov.uk/media-centre/newsreleasedonations.cfm/news/513),
22 May 2007 (http://www.electoralcommission.org.uk/media-centre/newsreleasedonations.cfm/news/632)
and 20 November 2007 (http://www.electoralcommission.org.uk/media-centre/newsreleasedonations.cfm/news/685).
Back
20
http://www.berr.gov.uk/files/file44593.pdf Back
21
http://www.hm-treasury.gov.uk/media/7/F/bud05hamptonv1.pdf
Back
