In the charity sector, like in the business sector, related party transactions are common. With new rules in effect, I urge you to ensure you are collecting information about your charity’s related party transactions.
As our guidance outlines, examples of these transactions include financial payments or the exchange of goods, property and services such as accounting or legal services.
For small charities, a 'related party' is defined as a person or organisation connected to a charity, with significant influence over it. For medium and large charities, it is defined in the Australian Accounting Standards Board’s AASB 124 Related Party Disclosures.
These transactions are not necessarily a problem but can give rise to conflicts of interest and may not be in a charity’s best interests.
It is important those who run charities - such as CEOs, directors and committee members - manage them well. Under Governance Standard 5, charity leaders cannot misuse their position; they must take steps to disclose any actual or perceived conflict of interest and ensure finances are managed responsibly.
The new rules reinforce transparency in this area. Many charities already keep records of related party transactions. What’s new is the requirement for all charities to report them to us annually, from the 2023 Annual Information Statement (AIS) onwards:
- those who submit an AIS at the end of the financial year must report related party transactions from 1 July 2022, and
- those who submit at the end of the calendar year must report related party transactions from 1 January 2023.
Although the 2023 AIS due date is well ahead, charities should be keeping records now.
Under the new rules, medium and large charities also need to disclose related party transactions in their financial reports, in accordance with relevant Australian accounting standards.
We recommend charities put policies and procedures in place to deal with related party transactions and conflicts of interest. Establish a related party transactions register. To help you we have a template in our Related party transactions guidance.
Keep records such as invoices, receipts and bank statements. Minutes should record discussions and decisions about related party transactions. When a decision is being made, such as awarding a contract, anyone with a conflict - actual or perceived - should declare it, not take part in the discussion, and not vote (stay out of the process).
Having thorough records of related party transactions will ensure that when it comes time do your reporting, you will have all the information you need available. Managing related party transactions is a key plank of good charity governance.
We are currently consulting on how the related party transactions questions are framed in the AIS. I invite you to have your say. We want to ensure charities can report as easily as possible.
Warm regards
Sue Woodward AM