Section 66 of the Charity & Trustee Investment (Scotland) Act 2005 imposes specific duties on charity Trustees in respect of managing conflicts of interest, and FRS102 and the Charity SORP require disclosure of transactions with related parties. A charity’s governance processes must be robust enough to not only ensure compliance with the Act but also to capture any transactions requiring disclosure. 

We commonly find that charities do have a Register of Trustee’s Interests (a record of the personal, business and financial interests of a charity trustee that may potentially lead to a conflict of interest) but often the register is not regularly updated (we would suggest that this needs to be done at least annually) or occasionally we find that most Trustees have returned their declarations but not all. 

Relatively few charities have gone the extra step to maintain a list of all related parties. The definition of a related party is quite wide-reaching and charities argue that as a result most Trustees will have a number of related parties, such that when you aggregate all of the Trustees’ information the list of potential related parties will be huge! We sympathise with this viewpoint but it is difficult to argue that all related party transactions would be identified if you don’t have a complete list of related parties to start with. 

Identification of related party transactions is ultimately the responsibility of the Trustees as a body, so it is up to them to implement a process whereby they are satisfied that the requirement is being met. One possible solution to this is to ask Trustees to make an annual declaration of transactions the charity has had with, and donations the charity has received from, their related parties. This can also be combined with a declaration of expenses waived (which is also a required disclosure in the accounts). 

One final issue we find in this area is that, whilst the Register of Interests may be in place, the charity does not have a policy for dealing with conflicts of interest. We believe that it is much easier to put a policy in place in advance of any situation arising than it is to try and agree a course of action once you’re faced with an issue. 

Further guidance on conflicts of interest and how to manage them can be found in OSCR’s Guidance for Charity Trustees: 

https://www.oscr.org.uk/media/2728/v10_guidance-and-good-practice-for-charity-trustees.pdf