Related Party Transactions

Who are Related Parties

Related parties for the purpose of reporting them to the ESFA are those that fall within the definition of the Charity SORP (FRS 102) and AFH and broadly include:

  • any member or Trustee of the academy trust
  • any individual or body that has the right to appoint a member or Trustee
  • any close family members of a member or Trustee
  • any person carrying on a business or partnership with a member or Trustee
  • any organisation connected to a member or trustee(an organisation is connected if the individual holds more than 20% of the voting right or shares of the entity).

Capturing Related Party Transactions

Capturing related party arrangements starts at the induction process. The induction of new members and Trustees includes a process to capture full disclosure of pecuniary and business interests for the individual and for their close family members. We encourage individuals to declare all known pecuniary and business interests and not just those that the individual considers to be relevant to the academy trust. This is an ongoing process which is undertaken on an annual basis.

These declarations are collated and included on a central register so that finance teams are able to identify a potential related party before inadvertently transacting with one.

Managing Related Party Arrangements

With the new approval limits for related party transactions there is likely to be a focus on the process that has been followed when entering into, and managing such arrangements. The Academy Trust will assess why, and how, we need to transact with a related party. Related party arrangements will not be the only factor in choosing to transact with a related party over a regular supplier. The board will ensure it fully documents and minutes its decision to enter into the transaction to ensure transparency.

The trust must also ensure that the ‘at cost’ principles are still applied. A related party must not make any profit on the transaction and Trustees should ensure that they have undertaken sufficient enquiries (including a written confirmation from the Trustee) that the transaction is at, or below cost, before entering into the transaction.

There should also be a mechanism to enable board members to declare any conflicts of interest at board meetings when a contract is being awarded or discussed at that meeting. Where this is the case the individual should leave the meeting until the matter is concluded.

 

The new requirements will only apply to related party transactions that have been entered into, or committed to after 1 April 2019. Agreements with related parties that are already in existence at 1 April 2019 will fall into the new regime upon renewal of the agreement. It is important that the academy trust has a clear policy on when agreements are revisited.