Here is the crux of the matter of the advertising controversy that has Ottawa driven to distraction:
The [Conservative Party of Canada] had transferred large amounts of money to the candidates' campaigns, more than $40,000 in several cases, and financial agents for the candidates promptly transferred the money back to the party as payment for radio and television advertising. Elections Canada says the candidates could not provide evidence they incurred the expense, meaning the cost might have to be credited to the party.
Now consider this actual example of what we're talking about. I've taken screen captures from the Elections Canada records to illustrate the movement of money. I'm using Stephane Dion as an example, looking at his returns he filed after running in the riding of Saint-Laurent-Cartierville. in the 2004 election.
In this case, Stephane Dion reports that a registered party, the Liberal Party, transfered $12,200 to him as a non-monetary transfer. The money originated in his federal riding association for riding of Saint-Laurent-Cartierville:
In this part you provide the details of all funds and goods and services transferred from a registered party, a registered association, or a nomination contestant and all goods and services provided by a registered party or a registered association.
Though Stephane Dion lists the $12,200 as coming from a registered party, clearly it is coming from a registered riding association for the Liberal Party.
The Liberal Party riding association hands the $12,200 to the candidate's office on April 21, 2004:
Given that Saint-Laurent-Cartierville is a pretty safe Liberal riding, it's hard to imagine that Stephane Dion needed all that much local advertising. In a moment you'll notice that this advertising was listed as "Other". Not radio. Not TV. Brochures, newspaper ads, and such.
In any case, on the same day the riding association moves the money to Stephane Dion's campaign office, Stephane Dion registers an expense of $12,200 for this "other" advertising. Compare the two returns. The same organization that gave Stephane Dion the $12,200 is listed as the supplier for $12,200 in services:
Supplier: Enter the name of the firm, organization or person providing the goods and services.
So the riding association gave Stephane Dion $12,200 to spend on advertising bought from the riding association.
But now note that an amount of $12,200 is entered in the Discount column:
Discount: Enter the difference between the amount charged to the campaign and the commercial value of the goods or services. If the goods or services were provided free of charge, enter the full commercial value in this column.
So the riding association gives Stephane Dion $12,200 in the first part of the return, and Stephane Dion uses that money to buy advertising material, listing the same riding association as the supplier. But that advertising was given to Stephane Dion for free (as per the Discount column). So who has the $12,200?
Now things get weird. The day after the federal riding association delivered $12,200 to Stephane Dion to buy advertising that didn't cost him anything, the riding association then makes a transfer of $12,200 to the Quebec wing of the Liberal Party of Canada. Why? To buy advertising, of course:
Understand that the federal riding associations report to the Quebec wing of the federal Liberal Party. So the $12,200 has been kicked up one level.
It sure looks like Stephane Dion used $12,200 to buy advertising from the Quebec wing of the party.
But the advertising didn't cost him anything! Heck, was there any advertising even purchased?
So what happened to the $12,200?
Well, on May 7, the national campaign transfered exactly $12,200 to the Stephane Dion's riding association, but as a monetary transfer:
And that closes the loop. The riding association creates a purchase out of their non-monetary budget for "other" advertising that doesn't actually cost the riding association a dime to make. That money that was allocated against the free advertising then goes to the Quebec wing of the federal party, where a week later it returns to the riding association as cash.
Did I say that closed the loop? Not quite. The Liberal Party as a whole has to file a return, and Part 3b lists all the transfers to riding associations. I checked the 2004 and 2005 returns, and no transfers of $12,200 (or amounts large enough to include that amount) are listed as being made to the St-Laurent-Cartierville riding assocation. On June 10, 2004, there is a $300 transfer to the riding association. And in Part 2e that lists transfers received from riding associations, there is nothing from St-Laurent-Cartierville at all.