What is a related party transaction?

A related party transaction is a transfer of resources, services, or obligations between related parties. It does not have to include financial payment.

A related party transaction can include:

• Purchases, sales or donations.
• Receiving goods, services or property.
• Leases.
• Transferring property, including intellectual property.
• Loans.
• Guarantees.
• Providing employees or volunteers.
• A Responsible Person of a charity providing professional services (for example, accounting or legal services) at a discounted rate or for free.

Related party transactions are common and not necessarily a problem. Often, they bring benefits to a charity (for example, discounted goods or services). But they can also give rise to conflicts of interest and there is a risk that they may not be in the best interests of the charity.

A conflict of interest occurs when your personal interests ‘conflict’ with your responsibility to act in the best interests of the charity.

The term ‘personal interests’ does not only mean your own interest, but can also mean the interests of your family, friends or other organisations you are involved with.

It also includes a conflict between someone’s duty to their charity and another duty they have (for example, to their employer or to another charity).

Charities should carefully manage any related party transactions to ensure that they are transparent, free from conflicts of interest, and in the best interests of the charity.

A key to managing related party transactions is maintaining good records. A charity must be aware of its record keeping obligations when reporting on related party transactions. For more on record keeping, see the short course Reporting Obligations of Your Charity Part A at Steps 2.1-2.7.