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New Related Party Disclosure Rules for Tier 3 and 4 Charities

In addition to the other mandatory reporting changes I’ve discussed in previous articles, which relate to charities with annual expenditure of less than $2m, another significant change is that charities are required to report related party transactions.

 

What is a 'related party transaction'?

A related party transaction is defined as a transfer of money, goods or services between a charity and those who are closely associated and have the ability to influence the charity. Charities typically rely on volunteers and donated goods or services, especially from related parties such as officeholders and members of the governing group.

 

Who should I consider as 'related parties' in my charity? 

Related parties can be people or organisations, including:

  • people who have significant influence over the strategic and financial decisions of the charity (e.g. officeholders, committee members, managers), and close members of their families (e.g. parent, partner, sibling, or child)
  • other organisations that have significant influence over the charity (for example, an organisation that appoints one of the members of the governing group of the charity).

Individuals are not considered to have significant influence if they are involved only in the day-to-day running of the charity and have no involvement in its strategic or financial decisions.

 

How do I determine if a 'related party transaction' should be reported?

The Tier 3 standard requires that a related party transaction must be reported if they are considered;

  • significant to your charity (either in nature or financial value), OR
  • not on normal terms and conditions (for example, discounted or donated goods, or discounted or volunteered professional services).

What is considered ‘significant’ will mean different things for different charities. What is considered significant for a small charity may not be significant for a larger charity. It is essential that judgement is used to determine what is significant. If including or excluding the information would change a reader’s understanding of the charity and its Performance Report, then we would recommend disclosure.

Typical related party disclosure includes Trustees or Board members who are remunerated by the Charity and the Chief Executive or Manager if they hold significant influence over the charity.

 

Why do I need to report these transaction? 

Reporting related party transactions is an important requirement to ensure accountability and transparency of transactions between the charity and any related parties. It will also show the level of contribution and support the charity receives from related parties through donated and discounted goods or services.

 

If you would like further assistance regarding related party disclosure or any other not for profit reporting matter please get in touch.