One of the many important responsibilities for trustees of academy trusts is understanding ‘related party transactions’ (RPTs): how to identify and disclose them, and why.
Any transfer of goods, services, money or obligations between the trust and a related party is classified as a related party transaction, whether or not it has monetary value.
What counts as a related party in an academy trust?
Academy trusts must apply the Charities SORP (FRS 102) definition of a related party. This is intentionally wide and includes:
- Trustees and members of the trust
- Key management personnel (including the Accounting Officer and senior leaders)
- Close family members of the above (spouse/partner, children, parents, siblings, etc.)
- Entities controlled or significantly influenced by any of the above (e.g. companies owned or directed by a trustee)
- Subsidiaries, associates or joint ventures of the trust
A transaction involving a trustee or related party is always regarded as material for disclosure purposes, regardless of value.
Core principles
The Academy Trust Handbook (ATH) requires that all RPTs must:
- Be transparent
- Be in the best interests of the trust
- Deliver value for money
- Be at cost (no profit may be made by the related party)
- Be properly authorised, with conflicts managed
Trustees must ensure that no individual uses their position for personal gain and that public funds are protected from both actual and perceived impropriety.
Trustees’ responsibilities: identification and prevention
Identifying related parties
Trustees are collectively responsible for ensuring the trust has robust systems to identify related parties and transactions, including:
- Maintaining a complete and up-to-date register of interests
- Requiring annual declarations from trustees and members, local governors and senior employees
- Updating declarations promptly when circumstances change
Trustees should challenge nil returns and ensure declarations cover family and business interests, not just the individual themselves.
Managing conflicts of interest
Where a potential RPT arises, trustees must ensure that:
- The conflicted individual declares the interest
- The conflicted individual takes no part in discussion or decision-making
- The decision is made independently by non-conflicted trustees
- The rationale for entering into the transaction is documented
- Alternative suppliers and options have been properly considered
These steps are essential to demonstrate compliance with both company law and charity law duties.
Reporting and approval requirements (DfE)
Under the ATH, all related party expenditure transactions must be reported in advance to the DfE (Department for Education). Prior approval is required where the total value with a single related party exceeds £40,000 in a financial year.
This applies to new contracts, renewals and variations. Income transactions do not require DfE approval but must still be disclosed in the accounts.
Trustees must ensure that no RPT proceeds without proper reporting or approval. The Accounting Officer should provide assurance that the transaction is at cost, and no element of profit has been included.
Failures need to be escalated and corrected promptly. Non-compliance is a frequent cause of regularity breaches in academy trust audits.
Disclosure in the annual accounts
Academy trusts must disclose all RPTs, including:
- Name of the related party
- Nature of the relationship
- Description of the transaction
- Amounts involved
- Outstanding balances and commitments at year end
- Confirmation that transactions were conducted at cost
If there were no RPTs, this must be explicitly stated.
Although disclosures are prepared by management, trustees are ultimately responsible for ensuring that disclosures are complete and accurate, all known relationships have been captured, and the accounts provide a true and fair view.
Auditors are required to report to regulators where RPT disclosures are incomplete or misleading.
Consequences of trustee failure
Failure by trustees to properly identify or disclose RPTs can result in:
- Modified regularity audit opinions
- Regulatory intervention by the DfE
- Charity Commission scrutiny
- Reputational damage and loss of public trust
The Charity Commission has repeatedly highlighted RPTs as a high-risk governance area.
Summary: active accountability
Trustees are not passive recipients of information. When it comes to RPTs, you are expected to:
- Understand what constitutes a related party
- Proactively declare interests and ensure others do the same
- Challenge and scrutinise proposed transactions
- Ensure advance reporting and approval where required
- Confirm full disclosure in the annual accounts
