Following on from our post on Conflict of Interest, we now highlight the subject of Related Parties. It is the responsibility of a charity to identify and disclose related parties and related party transactions and implement adequate accounting and internal control systems so that related party transactions are appropriately identified.
A simple example might be like this – if a Trustee suggests that his business partner in their decorators’ business be given a contract to paint the charity’s kitchen, then this would involve a conflict of interest, that business partner would be a Related Party, and the deal would involve a Related Party Transaction. Nobody would have done anything wrong, but it must be accurately recorded and reported in the charity’s accounts.
The SORP 2005 gives a very detailed explanation of Related Parties in its Appendix 1 Glossary GL50. Access the document here
The Pricewaterhouse Cooper website suggests a Four Step approach to Related Party Management here