How do we make sure we disclose every related party transaction?

England and Wales: This page sets out the position in full. Scotland: the same SORP requirement — OSCR treats non-disclosure as a reportable matter, the same as the Commission does. Northern Ireland: the same SORP requirement — CCNI treats non-disclosure as a reportable matter too.

Why set up a related party register at the start?

Not disclosing related party transactions is the most common substantive accounting failure the Charity Commission has measured. It is also fully preventable, if the trustees and treasurer keep a register through the year rather than rebuild it at the end. So the register belongs at the start, not in a year-end rush. This page assumes the charity’s financial controls are in place and the trustees have adopted a conflicts of interest policy.

The same SORP requirement applies in England and Wales, Scotland and Northern Ireland. OSCR and CCNI treat non-disclosure as a reportable matter too.

The numbers are stark. In a sample the Commission reviewed, only 55% of accounts in the smallest band fully disclosed related party transactions. That rose to 66% in the middle band, and 86% in the largest.

So the link between a charity’s size and how well it discloses is clear and sourced. The problem is not the same at every size.

Will the examiner or auditor catch a missing disclosure?

Not reliably, though most trustees assume the examiner or auditor is a safety net. Take the accounts in that same review that did not disclose fully and had been examined or audited. The scrutineer had reported none of them to the Commission. The Commission’s own words, verbatim:

“could be taken as evidence that the auditor or independent examiner may have been complicit in the trustees’ failure to provide complete disclosure.”

A register kept through the year does not rely on the scrutineer catching what the trustees missed.

It is also one of the first things on the list when you work out what the examiner or auditor will ask for.

What is a related party transaction, and who counts?

A related party transaction is any transaction between the charity and a related party, even one agreed at arm’s length. The accounting disclosure reaches further than most trustees expect. It also goes further than the Commission’s own plain-English note for a different form.

The Commission’s annual return glossary, on what it calls a “connected party”, puts it this way:

"In broad terms, this means family, relatives or business partners of a trustee, as well as businesses in which a trustee has an interest through ownership or influence. The term includes a trustee's spouse or civil partner, children, siblings, grandchildren and grandparents, as well as businesses where a trustee or family member holds at least 20% of the shareholding or voting rights."

That is a useful working definition, but it is not the Charities SORP’s own. The SORP’s full definition of a related party sits in its glossary, and its module on related party disclosures points to it.

The SORP’s related-party test also reaches key management personnel and entities under common control. So it reaches beyond trustees and their families and businesses, unlike the annual return gloss.

Treat the annual return definition as a floor for the register, not a ceiling. Some transactions sit close to the boundary and may or may not fall within it. For these, check the SORP’s own definition with an accountant, rather than guessing either way.

One category is clear-cut. Paying a trustee, or a person connected to a trustee, for goods or services they supply to the charity is itself a related party transaction. That is on top of any other authority the payment needs to be lawful in the first place.

See set up expenses and reimbursement for the s.185 boundary, and specifically immediately after the agreement, the paid and connected trustees constitute a MINORITY of those holding office. If a payment needed s.185 authority, it needs to be in this register too.

Three mechanics, run every year

Full disclosure rests on three mechanics:

• A signed declaration of interests from every trustee, each year — not once, when appointed, and never looked at again. Interests change: a spouse starts a business, a trustee joins another body the charity deals with. The same declarations feed the conflicts of interest register; one form can serve both.
• A running register of transactions with those parties, updated as they happen, not rebuilt from memory at year end. This is why the register sits straight after the expenses step. Trustee expense claims are one of its most common sources of entries.
• A nil return has to be stated too. Where there were no related party transactions in the period, the SORP requires the accounts to state that fact. Silence reads as a slip, not as confirmation that nothing happened. The Commission found that many practitioners had not picked up this requirement.

What notes do charity accounts have to include? carries the disclosure itself through to the accounts. This register lets the treasurer pull that disclosure out, rather than rebuild it. With the register running, the next step is to record your first restricted grant.

Common mistake: saying nothing where there were no related party transactions

It feels odd to disclose that something did not happen. But the SORP requires a positive statement where there were none. Without that statement, the accounts fail the regulator’s benchmark on this point.

An incomplete related party note can also be a matter of material significance. If it is, an examiner or auditor must report it (matter 9 on the regulators’ list).

Common mistake: disclosing the trustees’ own transactions but not those of connected persons and entities

Trustees answer the question they think is being asked, about themselves. The SORP asks a wider one. That wider question reaches spouses, family members and businesses they have an interest in too. This is the largest single cause of benchmark failure in the Commission’s own data.

Common mistake: assuming the examiner will catch it

Trustees expect the examiner or auditor to be a safety net. The Commission’s own review looked at the accounts that failed on this point and had been examined or audited. The scrutineer had reported none of them to it. That is evidence, in the Commission’s own words, that the safety net is not reliable.

Worked example

A trustee of Wrenfield Village Hall has a spouse who runs a company supplying the hall’s IT support. The transaction is with a connected entity, so it is disclosable. That holds even though the trustee is not personally a party to it, and even though the price was agreed at arm’s length.

The register already holds the trustee’s declared interest. The supplier’s invoices are coded against it as they arrive. So at year end, the treasurer pulls the disclosure note from the register. There is no nine-months-later rebuild of who supplied what to whom.