Registered Charities – Related Party Transactions

Did you know that related party transactions are not prohibited, but they do need to be identified, managed and disclosed properly?

For registered charities, related party transactions are an important governance and reporting issue. The ACNC explains that these transactions can occur where resources, services or obligations move between the charity and a related party. They do not have to involve a cash payment. They can include purchases, sales, donations, loans, leases, guarantees, the transfer of property, or the provision of goods or services.

The concept is closely connected to conflicts of interest and private benefit. A related party transaction maybe entirely appropriate and may even benefit the charity, for example where goods or services are provided at a discount. However, the board still needs to ensure that the transaction is in the charity’s best interests, is approved through an appropriate process, and is recorded transparently.

A practical example is where a director of a charity owns or controls a company that is engaged by the charity to provide services, and that company is paid a fee. That arrangement is a related party transaction. It should not be treated as an ordinary supplier arrangement simply because the services are needed or the fee is reasonable. The director’s interest should be disclosed, the conflict should be managed, the board’s decision should be documented, and the transaction should be considered for ACNC and financial statement reporting.

From the 2023 Annual Information Statement onwards, most registered charities must report related party transactions to the ACNC. The ACNC uses a simplified related party definition for small charities, while medium and large charities use the definition in Australian Accounting Standard AASB 124 Related Party Disclosures.

For medium and large charities, related party disclosures also need to be considered in the annual financial report. AASB 124 is designed to ensure that financial statements include the disclosures needed to draw attention to the possibility that the charity’s financial position or performance may have been affected by related parties, related party transactions, outstanding balances or commitments.

The practical point is that charities should maintain a related party and conflict of interest register, ask Responsible People and senior staff to declare relevant interests regularly, and ensure that board papers and minutes clearly record how conflicts and related party transactions have been managed. This is especially important where a director, a close family member, or an entity connected with a director receives payment or another benefit from the charity.

Further details are available on the ACNC’s guidance page, Related party transactions, and in AASB 124 Related Party Disclosures.