Presenting a live 110 minute webinar with interactive Q&A Lobbying by Non Profit Clients: Navigating Federal and State Regulations Complying with Lobbying Activity Tests, Limits, Registration and Reporting WEDNESDAY, DECEMBER 1, 2010 1pm Eastern 12pm Central 11am Mountain 10am Pacific Td Today s faculty features: Paula Cozzi Goedert, Partner, Barnes & Thornburg, Chicago James Christian, Partner, Patton Boggs, Washington, D.C. Ronald Jacobs, Partner, Venable LLP, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Article Printed in ABA Section of Administrative Law and Regulatory Practice, The Lobbying Manual, Fourth Edition A Practical Guide to Recordkeeping and Reporting Compliance Under the Lobbying Disclosure Act James B. Christian, Jr. The adoption of the Lobbying Disclosure Act in 1995 (LDA) brought the beginning of a new era to those who represent clients before the Federal government. New rules were adopted with regard to matters such as when registration should be required, who should register, what should be reported, who are covered officials, what disclosures should be made, and of course, how expenses should be reported. As those who register and report under the LDA know, expenses for those who lobby on their own behalf, and income for lobbying firms, are reported under a good faith estimate standard. For many this standard makes compliance reasonable, but with the advent of new audit requirements, there are questions about how best to collect information to comply with the standard. The good faith standard was very likely a reaction to the quality and usefulness of information reported under previous law. During hearings held by the Senate Subcommittee on Oversight of Government Affairs of the Senate Committee on Governmental Affairs, Chairman Carl Levin (D- MI) called the information gathered under the predecessor to LDA, the Federal Regulation of Lobbying Act (the Act) utterly irrelevant. 1 Under the Act, registrants were required to submit, under oath, a detailed line item report of an organization s expenditures such as printed or duplicated matter, office overhead expenses such as rent, office supplies, utilities and similar items, telephone and telegraph expenses (that certainly dates the legislation), travel, food, lodging, courier expenses, and taxi fares. (I recall cajoling my colleagues to submit these receipts in order to complete the forms and receiving in return crumpled little wads of paper taxi receipts). The good faith standard was adopted because the purpose of the disclosure was to establish the scope of the lobbying effort rather than requiring the disclosure of precise dollar amounts. 2 This approach was endorsed by diverse groups including the Office of Management and Budget, The American League of Lobbyists, The National Association of Manufacturers, Common Cause, and the American Bar Association. 3 1 S. Rep. No. 103-37 at 5 (1991) (citing the July 16, 1991 subcommittee hearing record, at 72-73). 2 Id. at 33. 3 Id. n. 41 (citing the Subcommittee on Oversight of Government Affairs of the Senate Committee on Government Affairs hearing record, March 26, 1992).
Following the adoption of the LDA, the good faith standard was the subject of guidance by the Secretary of the Senate and the Clerk of the House. In Guidance issued June 26, 1996, the Secretary and Clerk pointed out that the LDA contains no special recordkeeping provisions... but requires a good faith estimate... (of costs and expenses). The Guidance offered one example of a method that would meet the reporting standard. The Secretary s guidance suggested that registrants could use a percent of time estimate method in which employees who engaged in lobbying expenses would estimate their approximate percentage of time devoted to lobbying activities which would be used to produce a percentage of the organization s overall budget that was devoted to lobbying activities. 4 Beyond that, the Guidance offered little specificity other than to say that, as long as the registrant had a reasonable system in place and followed that system in good faith, the requirement of reporting expenses would be met. The Guidance is a flexible and reasonable approach to expense reporting and has the obvious benefit of promoting ease of compliance. Press articles reporting on the increasing number of lobbyists reports and the amount of reported dollars of lobbying income and expenses indicate that compliance is robust under the current system, despite the lack of a uniform or recommended system for recording income or expenses. 5 Entities such as law firms typically maintain detailed billing records which enable them to retrieve and report their expenses fairly easily. In addition, detailed billing records can assist in making determinations about what issues were lobbied, who acted as a lobbyist, and who engaged in lobbying activities. Trade associations and corporate offices may require similar hourly timekeeping. For small firms, including solo practitioners, the good faith standard is especially important as it permits these smaller entities to use less elaborate methods of record keeping, making reporting and compliance effective and efficient, if not pain free. The adoption of the Honest Leadership and Open Government Act of 2007 (HLOGA), made several changes to the LDA, but one important change for registrants was the possibility of random audits conducted by the GAO. The potential for audits has created increased interest in finding a recordkeeping method that would be both reliable and responsive to an audit. The concern is not merely one of bookkeeping, as HLOGA also contained criminal penalties for violations of the Act, including reporting violations. This concern has not been alleviated by the fact that HLOGA, like its predecessor the LDA, does not prescribe or endorse any recordkeeping method that would meet audit standards. The good faith estimate standard remains unchanged and apparently is working. The GAO, in its first audit report to Congress required under HLOGA, found that ninety-five percent of audited registrants could provide 4 Secretary of the Senate and Clerk of the House, Lobbying Disclosure Act Guidance No. 2 (June 26, 1996) p.7. 5 Shawn Zeller, No Bailout Needed for K Street, CQ Today Online News, January 29, 2009. Renick Mayer, Washington Lobbying: Even Now a Growth Industry, Citizen-Times.com Asheville, March 2, 2009.
accurate supporting information, either written or oral, for their reports, although the report reflected questions and concerns by registrants about the recordkeeping requirements. 6 This concern is well placed as the scrutiny and intensity of future audits will likely increase. At the same time, increased scrutiny which demands more recordkeeping could prove difficult for smaller lobbying and consulting firms who may not have the resources to set up elaborate accounting and information reporting systems. Furthermore, the imposition of criminal penalties under HLOGA brings an increased sense of urgency, even in the context of the good faith estimates standard. Registrants are therefore rightfully concerned that relying on past methods of providing good faith estimates may not be prudent. What is the best method to comply with the now auditable reports under HLOGA? What are the best practices to support a good faith estimate based method? A reasonable system should provide not only a verifiable picture of the income and expenses attributable to lobbying expenses, but also should accurately reflect the basis for decisions on other auditable items of the report, such as who lobbied, did they have prior government service that must be reported, what were the issues the registrant lobbied, and how were the issue codes selected? On behalf of my firm I have responded to a GAO audit under HLOGA, and the inquiries covered all these reportable items. There is no one-size-fits-all approach, and the good faith standard is important for fair, effective, and efficient compliance for entities of all sizes. However, certain practices and principles can provide a framework for compliance that a registrant of any size can utilize to respond to audits or other public scrutiny. As any lobbyist knows, issues can quickly expand and assignments can morph well beyond the original engagement. Therefore, an audit ready system should be viewed as an overall compliance program, not merely an expense accounting system. The suggestions below are designed to launch a reporting entity on a path to that system. Best Practices Checklist for HLOGA Reporting Compliance 1. Put Someone in Charge. Designate one person to serve as an ethics compliance officer who will be responsible for overseeing the registrant s compliance program and for collecting, maintaining, and filing all necessary paperwork, arranging for training and for consulting with legal counsel as necessary. The designated compliance person should create a calendar with filing deadlines and dates, including internal information collection. The compliance officer 6 Lobbying Disclosure: Observations on Lobbyists Compliance with New Disclosure Requirements, GAO Report to Congress, at 4 (September 2008).
should monitor compliance with filings not directly his responsibility, such as LD 203. 2. Create and Adopt a Policy. Adopt an official policy for your company, regardless of size, stating the registrant s commitment to abide by all public ethics statutes, rules, and regulations. Many firms have pre-existing policies which may need to be updated; and those companies without such policies may welcome the opportunity to educate and train employees on these important issues. A registrant might consider requiring each employee engaged in lobbying activities to acknowledge receiving a copy of the policy. 3. Collect Information. Survey employees to determine who has contact with legislative and executive branch employees, and collect information on the nature of those contacts. The information collected should be designed to identify not only those who have contact with government officials but also those who support contacts. This will assist in determining expenses associated with lobbying activities and is important for larger entities that have or seek government contracts and therefore may be prohibited sources for Executive Branch gift rules. All lobbyists or potential lobbyists should prepare and submit a Covered Position Disclosure Form in order to comply with the new 20-Year Lookback requirement of HLOGA. New employees who may be lobbyists should also complete the form as part of regular new employee intake procedures. 4. Train Employees. Conduct mandatory ethics training based on HLOGA House and Senate Gift and Travel Rules and Campaign Laws on a regular basis; more often if laws change. Attendance at training sessions should be documented. 5. Document Decisions Related to Registration/Report Items. In addition to expenses and income, GAO audits cover matters such as who lobbied, what issues were lobbied, and how issue codes were selected. Registrants should regularly review these items and document decisions with respect to all reportable items. For some entities this information will initially be found in engagement documents. As assignments expand or change, internal records or new engagement correspondence should reflect these changes.
6. Maintain Required Certifications. All lobbyists or potential lobbyists should be required to certify that they have read and understand the House and Senate Gift and Travel Rules and they have neither offered nor made a gift, including the gift of travel, that would violate these rules. The registrant should keep a copy of the signed certification on file for at least seven years. Form LD203 could substitute for this form. 7. Document Outside Lobbyists Responsibilities. When working with outside lobbyists, the contract should clearly state each party s responsibility regarding compliance and filing with the LDA. The contract should clearly delineate the lobbyist s authority to represent and to act on behalf of the employer. The employer should coordinate with the outside lobbyists the filing of all compliance documents for timeliness and accuracy. Copies of such documents and contracts should be retained for seven years. 8. Document Campaign Finance Law Activity. All lobbyists or potential lobbyists should maintain on a regular basis documentation of political activity in order to comply with LD 203 requirements. Additionally, lobbyists and employees who support them should participate in campaign finance training. 9. Prepare for an Audit. Registrants should establish an internal procedure to use in the event of an audit, including both who will respond and a procedure for collecting and securing supporting documents. 10. Establish a Document Retention Policy. Registrants should develop and implement a document retention policy and system for the information gathered as part of the public ethics compliance program. Retain records for seven years, one year longer than required by LDA and HLOGA.
This list of best practices may seem best suited for larger entities but many of these practices can be easily adopted for smaller entities. Attention to and scrutiny of those who represent clients in the legislative and regulatory policy making process will doubtless continue and increase. While GAO audits have initially been informational in nature, it is prudent to expect that scrutiny and enforcement activity will both increase. To protect against reputational damage or worse, those subject to registration and reporting should take all reasonable steps to ensure their compliance with the LDA and HLOGA. As my colleague, Nick Allard has written, lobbying is indeed an honorable profession. 7 Those who engage in this profession should do all that is necessary to protect its integrity. In this way the misperceptions and uninformed criticisms of those who represent clients in the Federal policy making process will be best refuted. 7 Nicholas W. Allard, Lobbying Is An Honorable Profession: The Right to Petition And The Competition To Be Right, 19 Stan. L. & Pol y Rev. (2008).
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