Charities have to report on their related party transactions in the 2023 Annual Information Statement.
This webinar looked at the specific obligations that charities have, as well as relevant questions in the Annual Information Statement.
Webinar Transcript
Gabby Aitken
Hi, everybody. Welcome, and thanks for joining us today for our webinar, which is going to be looking at related party transactions and the 2023 Annual Information Statement.
My name is Gabby and I am from the ACNC’s Education team. Joining me today is Joe, who’s from our Reporting and Red Tape Reduction team. Hi, Joe, thanks for joining us today. How are you doing?
Joe James
Hey, Gabby. I’m good, thank you.
Gabby Aitken
Thanks, Joe. So, first, to start off, I'd just like to acknowledge the traditional custodians of country throughout Australia and their connections to the land, sea and community. I pay my respects to them and their cultures and elders, past and present. Today, this webinar is being presented from Wurundjeri land.
Now, before we begin, just a couple of quick housekeeping points, as usual. So, if you do experience any difficulty with the webinar audio, you can try listening in through your phone. There’ll be a number that you can call listed in the email that you received when you signed up to attend today’s webinar. There’ll be an access code in there and you can listen in through your phone.
Now, we've got some of our colleagues, Chris, John and Eric, who will be assisting us with this presentation today. They'll be answering some questions as they come through in the background, so feel free to send through your questions through the go-to webinar interface at any time throughout the webinar. We'll try to answer as many of those questions as possible, but if we don't get to yours or if you think of something a bit later on, you can always send us an email at education@acnc.gov.au and we’ll be able to get back to you.
Now, we will be recording this webinar today, so you’ll be able to watch it later on and you can read through those presentation slides. We’ll send you all out an email to everyone who’s registered with all of those links.
Finally, we'd always love to get some feedback from you, so we've got a quick survey at the end of the webinar today. It'll be super quick, about 30 seconds to complete, so we'd really appreciate it if you can fill that out right at the end. Okay, so now that I've covered those few admin points, let's move on to the agenda for today.
So, our main focus is on related party transactions. So, we’ll start by explaining who is a related party and what a related party transaction is. We’re also going to have a look at how the requirement to disclose related party transactions came about and then we’ll discuss the specific requirements that charities need to answer in their 2023 Annual Information Statement, or the AIS as we sometimes call it. We’ll also touch on a few of the changes to this year’s AIS, as well as some common reporting mistakes that charities can make.
Okay, so let’s get started. Joe, are you able to give us some insights into what a related party is?
Joe James
Absolutely. Related party is someone who’s connected to a charity and who could influence the charity. So, a small charity is that charity's annual revenue under $500,000, focuses on what we call significant influence, or medium and large size charities, that’s charities with a revenue over $500,000.
The definition of a related party is based on the existing definition of the Australian Accounting Standards, so AASB as it’s often abbreviated. There are some additional considerations such as control of joint control and we won’t go into all the specifics here, but you can find out more details about related parties and the definitions based on charity size on the ACNC website, as well as the AASB website.
Generally, a related party could be someone with direct involvement with the charity such as a Responsible Person, so that’s the board or committee member or senior management such as the CEO. The close family members of these people can also be a related party. A related party could also refer to another organisation that has significant influence over the charity's decision-making. If a related party of one charity also controls or has significant influence over another organisation, and that organisation could be a related party.
Gabby Aitken
Great. How about other employees or volunteers, are they and their families also considered related parties?
Joe James
No. That’s an important point to note. Being involved with charity doesn’t make someone a related party. We need to consider whether the person or that organisation has significant influence over the charity’s strategic and financial position.
Gabby Aitken
Great. So, now that we know a little bit more about what a related party is, can you tell us what is a related party transaction?
Joe James
A related party transaction is really any transport of resources, services or obligations between a charity and a related party. So, let’s go through an example. Maybe a charity is looking to buy a vehicle to deliver meals to people in need, and a board member’s brother has a vehicle he wants to sell. If the charity bought the vehicle from the board member’s brother, that would be a related party transaction. The brother is a close family member, therefore a related party, and the sale of the vehicle would be the transport of resources, so a transaction has taken place.
Gabby Aitken
That’s a great example. Thanks, Joe. It also highlights a good point that related party transactions can be really beneficial to charities. So, in this case, the brother may be happy to give the charity a discount on that purchase.
So, related party transactions aren’t necessarily a problem, but it does mean that the charity needs to know how to effectively manage related party transactions, and charities also need to be aware of conflicts of interest and how to safeguard charitable assets from the risk of private benefit.
Joe James
Exactly, Gabby. There are some things charities can do to make sure these types of transactions are responsibly managed. That would include maintaining a register of related party transactions, having appropriate policies and procedures to ensure decisions are always being made in the best interest of the charity and not a related party. Lastly, just having processes in place to manage conflicts of interest.
Gabby Aitken
Excellent. So, in this example, the board member should identify that they do have a conflict of interest, since their brother is involved, and they should then notify the rest of the board straight away. So, the conflict should be recorded and the charity’s conflict of interest policy should be followed. So, this may require the board members to excuse themselves when a decision is being made about the purchase of the car.
Now, to ensure that the purchase is being made in the charity's best interest, the board needs to conduct due diligence. So, this could involve seeking quotes for other similar vehicles to check if they are paying a fair price. So, if the charity does go ahead with the purchase of the board member's brother's car, all of the details need to be recorded in the register of related party transactions.
Joe James
That’s right, Gabby. If you’d like some more information about how to manage related party transactions, you can always find more details and resources on our website at acnc.gov.au/rpt. I’d also just like to clarify a related party transaction doesn’t necessarily need to involve a financial payment. So, for example, a charity runs a paid program and the child of the CEO can attend for free. This still falls under the definition of a related party transaction because while the child is a related party and the program is a service provided by the charity.
Gabby Aitken
That’s a really great point. So, we’re not exclusively talking about the financial transactions. Now, before we get into the specific questions about related parties in the Annual Information Statement, could you give us a brief explanation of why charities are being asked to provide this information about related parties?
Joe James
Yes. That's a good question because some charities have asked us why they need to be reporting this information to us. Back in 2018, the government established an independent review panel to carry out a review of the ACNC legislation and one of the requirements was to require charities to disclose related party transactions. This requirement is consistent with overseas charity regulators who require charities to report the same related party transactions. Disclosing this information helped to build public trust and confidence, as the public can now see how the charity’s assets are being used.
Gabby Aitken
That's right. So, it’s a great way for charities to be able to demonstrate transparency. Now, can you walk us through how charities actually disclose this information to the ACNC? So, what questions do people need to complete in their Annual Information Statement?
Joe James
Sure, Gabby. So, the first thing charities will be asked is did your charity have reportable related party transactions in the 2023 reporting period. So, that's just a yes or no answer.
Gabby Aitken
Sure. What makes a related party transaction reportable?
Joe James
An example of reportable related party transaction could be if a charity spent money in exchange for a related party to supply goods or provide services to the charity. This can be pretty common in the sector. There are some other examples, so for example, you can include if a charity is giving a loan or transferring its property to a related party or paying a salary to a related party’s relative. Now, this isn’t an exhaustive list, it’s just a few examples.
Gabby Aitken
Of course. How about non-reportable transactions, could you give us a few examples of those?
Joe James
Sure. Some things that wouldn't be considered reportable include a gift of a box of chocolates to a charity's board members, just to say thanks for their pro-bono service, or related party buying goods from the charity on the same terms offered to the rest of the public. Volunteer services provided by a related party that are the same as services provided by the charity’s other volunteers does typically not result in a reportable related party transaction. We also generally don’t consider donations received from a related party to be a reportable related party transaction, which requires disclosure within the AIS.
Gabby Aitken
Thanks, Joe. So, now if people are still a bit unsure about whether something is reportable or not, you can find some more examples in our web guidance about related party transactions.
Joe James
That's right, Gabby. But please keep in mind that while examples are provided on the website, at the end of the day it’s up to the charity and their advisors like accountants or auditors to determine if there's sufficient interest in these transactions from the stakeholders to make them reportable. Medium and large charities must determine if it is a material transaction when preparing the annual financial report and make sure it’s disclosed if it is material.
Gabby Aitken
Okay, that makes sense. So, if a charity does have reportable related party transactions, what information do they need to provide?
Joe James
Sure. So, if you didn’t have any you can just answer no and that's that, and you can move into the next section of the AIS. But if your charity has a reportable related party transaction during the reporting period, then answer yes and the charity would need to select the relevant related party transactions for the list that you can see up on your slide. The last option for others is just in case your charity's transaction doesn't fit into a categories, you can type in the type of transaction. If a charity chooses, it can provide any other relevant details. So, for example, if you are submitting a financial report which is needed for medium and large charities. You may just enter the page number on which the related party transactions are disclosed.
Gabby Aitken
Okay, great. You've just mentioned the financial report. So, what do people need to include in there?
Joe James
So, for medium and large-sized charities they need to provide details of related party transactions in the financial statements in accordance with the requirements AASB 124 or 160. This applies whether the charity prepares special purposes financial statements or general purpose financial statements. Some more of the technical details are available on our website and charities can also talk to their accountant, their reviewer or auditor for more information. More guidance is also available on the AASB website.
Gabby Aitken
Perfect. In order to provide transparency to the public, the financial report as well as the charity's details and its programs and financial information from the AIS, it will be made available on the ACNC Charity Register, which members of the public will be able to view.
Joe James
Yes, that’s correct, Gabby. Now, there may be situations where a charity has been approved to have some or all of its information withheld from the Register. So, this can be for example if there was a public safety issue, or the information is commercially sensitive. Aside from those cases, this information will be available as part of the AIS Register.
Gabby Aitken
Okay and just before we move on to some more general guidance and tips about completing the Annual Information Statement, we do just have some resources to help charities with meeting their obligations to report related party transactions, as you can those up on your screen at the moment. We’ve got a template that charities can use, so this helps to keep track of related part transactions. So, you’re able to download that from our website. There’ll be a link to it on our related party transactions webpage.
Joe James
That's right, Gabby. You will be able to record the related party name, the nature of the relationship, a description of the transaction, the amount, the dates and the relevant approval details. A couple of examples are already provided in the template just to guide charities. All charities are welcome to use this template if they feel it is appropriate to their circumstances, especially the smaller ones that may have limited resources. As always, for more details about the different aspects of related party transactions that we have covered today, it’s available at acnc.gov.au/rpt. While you’re on our website, you can also have a look at our 2023 AIS guide, which he details about completing your AIS and you can find that at acnc.gov.au/2023AISGuide.
Lastly, charities can always email our reporting inbox at reporting@acnc.gov.au if they have any questions about related party transactions. For other general questions including for help submitting the 2023 AIS, you can submit a general enquiry in the Charity Portal, or from our Contact Us page.
Gabby Aitken
Excellent. Speaking of the Annual Information Statement a bit more generally, many charities will be due to submit their AIS pretty soon. So, if you’re reporting for a standard financial year, so from the 1st of July 2022 to the 30th of June 2023, your Annual Information Statement will be due by the 31st of January 2024. So, start of next year. It’s a really great idea to get your AIS submitted sooner rather than later, so if you can try to submit it this year, that's a great idea.
That way if you do need a little bit of extra help or advice about completing the Annual Information Statement, you've got a bit of time to contact the ACNC for help. It does also give you some time to reach out to your accountant or to other people who work for the charity if you do need any additional information from them.
Now, for those of you who are operating on a calendar year, your reporting for 2023 hasn’t ended yet. So, your 2023 AIS will be due by 30th of June 2024, so the middle of next year, and you’ll have access to complete it in the charity portal from early next year. Now, in preparation of those charities who are about to submit their 2023 Annual Information Statement, there are a few things that people should just be aware of. Joe, do you want to run us through those?
Joe James
Sure, Gabby. So, the first thing I want to remind people of is the reporting thresholds. Small charities with an annual revenue under $500,000 need to submit their AIS, including the related party transactions questions. It’s not mandatory to also submit a financial report, but small charities can choose to submit one if they want to. Medium and large charities need to submit both the AIS and a financial report. Medium charities have a revenue of $500,000 or above, but under $3,000,000, they can have the financial report either reviewed or audited. Large charities with revenue of $3,000,000 or more need to get their financial report audited before it’s submitted to us.
Now, there's also Basic Religious Charities. If your charity meets the specific criteria to report as a Basic Religious Charity, the charity still needs to submit an AIS, but the financial questions are optional, so you won't need to report related party transactions.
Gabby Aitken
Okay, thanks, Joe. Aside from related party transactions, are there any other changes that we’ll see this year?
Joe James
Yes, there are a couple of new things this year. We’ve introduced a new version of program classifications. Each charity needs to provide the details of at least one charity program which is an activity or service that a charity runs to pursue its charitable purpose or its beneficiaries. It may be small or large, ongoing or temporary, but it’s something the charity does to achieve its goal.
Gabby Aitken
So, what you’ll need to do it choose a classification for each of your charity’s programs. So, if you are adding a new program this year or if you’re just reviewing the details from a program, you've already listed in a previous year, just make sure you check the classification to ensure that it matches.
Joe James
Exactly. Another update is that you’ll need to provide an email address if you add a new Responsible Person, so that's a board or committee member or trustee. This should be the person’s own email address not a generic charity email. Once they’ve been listed a Responsible Person, they can sign up to the Charity Portal that same email address.
Gabby Aitken
Okay, thanks, Joe. So, those were a few new things to note. How about common mistakes that you see, are there any problems that you regularly see charities having when they complete their Annual Information Statement?
Joe James
So, currently, the reporting team is reviewing a sample of Annual Information Statements and financial reports from last year. There are some common errors that we've noticed. We often see the financial statement pack selection is incorrect, and time and again, we come across charities that list the incorrect type of financial statement in their AIS. So, when you complete your AIS medium and large charities will be asked about the type of financial report they’re providing, either a general purpose or special purpose financial report. You need to know which option to select in the AIS. So, it's important to double-check what's written in your financial report. Typically, this will be stated in note one after the financial statements, and you can always check with your accountant or auditor if you're unsure.
Another issue we see is material differences in some of the figures in the AIS, in comparison to the financial report. This could just simply be a result of a typo, for example, a zero is mistakenly left off. It can change a charity's revenue from say one million dollars to $100,000. That makes a big difference, and it would cause issues with your charities reporting with the incorrect charity size. Before you submit your AIS, please make sure you read through all the information and compare it to your financial report and other records, just to double check the information is accurate.
Gabby Aitken
Thanks Joe, and that's a really important point because donors and members of the public really rely on the information that's published on the Charity Register. So, charities should really take care to ensure that all of that information is accurate. Now, if you do notice that you've made a mistake when you submit your Annual Information Statement, you can amend it in the Charity Portal. So, if you do notice any little errors, just make sure you fix those up. Another thing I just wanted to mention we’re talking about the Annual Information Statement, is that it is the responsibility of all Responsible People to be completing and submitting accurate information about the charity’s finances and operations. So, while some charities may have their treasurer or maybe their accountant completing the AIS, you should really consider it to be a team effort to complete the Annual Information Statement, both accurately and on time.
So, we have some resources available on our website that your charity will be able to use. So, that includes a checklist of all of the information you’ll need to complete your AIS, so it might be a good idea just to have a look through this together so everyone on the board or committee knows what information needs to be provided when you submit your AIS.
So, I think that is going to bring us to the end of our main presentation for today. But we do have some time to answer a few questions from our audience. Now, a few people asked us to talk about key management personnel remuneration when they registered for today’s webinar. So, I think we’ll start there. Joe, are you able to give us just a brief overview of key management personnel remuneration is?
Joe James
Yes, Gabby. This is a really important topic to discuss because we’ve noticed charities having trouble with it. Key management personnel or KMP as it's often abbreviated are the senior decision-makers of the charity. That includes the Responsible People and other senior staff like the CEO. It doesn't include team leaders or operational managers. Remuneration refers to all forms of consideration provided by the charity in exchange for services rendered to the charity. That covers things like wages, or salaries paid, fringe benefits and termination benefits.
Gabby Aitken
Great. What exactly do charities need to be reporting?
Joe James
Small charities don’t need to submit an annual financial report, so there's no requirement for them to report KMP. Medium charities providing special purpose financial statements also aren’t required to report key management personnel remuneration. Medium charities preparing general purpose financial reports only need to report this information in their financial reports. However, all large charities need to report this information in their financial reports, but also in the Annual Information Statement.
In the AIS, large charities will be asked if your charity has more than one remunerated KMP. If the answer’s yes, the charity needs to provide the number of KMP, and the total remuneration paid. For ACNC reporting KMP remuneration is separate from related party transactions. The requirement to report related party transactions applies to charities of all sizes. While reporting KMP remuneration is mandatory, only for the large charities and medium charities preparing general purpose financial reports.
Gabby Aitken
Thanks, Joe. So, that was just a bit of an overview, but if anyone is looking for a bit more detail you can read our web guidance at acnc.gov.au/kmp. Now, as you mentioned before it is really important to make sure that this information matches both in the Annual Information Statement and in your financial report.
Joe James
Yes, Gabby, good point. This is another common AIS error that we’ve seen where the key management personnel remuneration wasn’t consistently reported in the AIS and the annual financial report.
Gabby Aitken
Okay, thanks, Joe. So, I think we’ve got time for one more question from our audience today. So, this one brings us back to our main topic of related party transactions. So, if a board member does incur some out-of-pocket expenses and then they are reimbursed by the charity, would this be considered a related party transaction?
Joe James
Yes. So, in case there is a transfer of resources, being money, from the charity to the board member who is the related party, therefore it would qualify as a related party transaction. Now, whether the transaction would be considered reportable, depends on if the transaction poses any risks or threats to the charity's assets for private benefit. If it's a reasonable reimbursement for charity-related expenses that the board member has paid out of pocket, I would say generally it isn't considered reportable.
Gabby Aitken
Thanks, Joe. As we mentioned earlier you can find a bit more information and some more examples on our website, so it’s acnc.gov.au/rpt. So, I think that will our last question for today. So, you can see some of those resources up on our screen for the moment, if you do need some more information.
But that's going to be our last question for today’s presentation. So, I do just want to thank all of our colleagues for helping out with answering questions, so Chris and John and Eric for answering all of those behind the scenes. Hopefully, they got to your question, if not, you can see the email up on your screen or you can shoot us through an email at education@acnc.gov.au.
Now, we also have recorded today’s webinar, so it will be available online soon, and we’ll send a link out to everyone who’s registered, so you’ll be able to access it. We’ll also share with you the slides and these key resources just if you need any more information.
Now, we’ve got a few ways that you can stay in touch with us which you’ll be able to see up on your screen at the moment. Obviously, we’ve got our website which has got loads of resources as well as all of our past webinars and podcasts. You can also find some information about how to get in contact with us. Now, you can also follow us on social media, and you can sign up to our monthly newsletter, The Charitable Purpose. So, that includes all of our latest news and resources and that's also where we’ll be promoting upcoming webinars.
Now, just before we wrap up, we'd really love to hear your feedback, so there will be a really short survey just at the end of the webinar. So, it'll only be a couple of questions. If you've got 30 seconds to stay online, we'd really appreciate if you just fill that out and give us a little bit of your thoughts. Okay, so I think that brings us to the end for today. Thank you, Joe, for joining us to talk about related party transactions.
Joe James
Thank you, Gabby. It was great to be here.
Gabby Aitken
Thanks again. Okay, have a great day everybody and we will see you at the next webinar.