Trustees must always act in the interests of their charity and not for private benefit. For this reason, it is important to good governance that trustees disclose any transactions with persons and entities closely connected to the charity or its trustees, known as related parties, disclose any trustee remuneration or expenses paid to trustees and handle any conflicts of interest properly.
All charities preparing accruals accounts (or SORP) must be transparent about their transactions with related parties. The auditors and independent examiners of charity accounts must check that the required disclosures have been made and report to us if they have not.
We reviewed the related party transactions disclosed in the accounts submitted by 262 charities. The accounts were drawn from three random samples of different income brackets to reflect the different accounting and external scrutiny requirements that apply.
We found that less than two thirds of charities with incomes less than £1 million complied with transparency requirements. 86% of charities with incomes over £1 million provided the required information. The vast majority of charities covered trustees’ remuneration and, to a lesser extent, trustees’ expenses. However, the disclosure of transactions with persons and entities closely connected to the charity or its trustees was significantly less complete.
We are asking the trustees who did not fully disclose their related party transactions to provide us and their auditor or independent examiner with the missing disclosures. Where the auditor or independent examiner is a member of one of the main professional bodies, we are asking their professional body to obtain confirmation from their members of whether there are in fact any transactions that should have been disclosed and, if there are, to report this to us as a matter of material significance.