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SAAF Education Blog: Related-Party transactions: What you need to know

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Related-Party transactions: What you need to know

By August 2019, all trusts have been told to clear any “related-party transactions” with the Education and Skills Funding Agency to make sure no trustee or committee member are abusing their position.

This new rule has been implemented as a response to comments made by the parliamentary public accounts committee earlier this year that claimed the previous rule of allowing transactions, so long as no-one profits from the deals, were “too weak” and “open to manipulation”.

Related-party transactions are defined as any deal made between an academy trust and associated private companies that are ran by one of the trust members, trustees, or their family members.

Why is the rule needed?

In 2016, a statement was produced that revealed 40 per cent of trusts had some form of related-party transaction.

Most of these incidents only appear to come to light after the deal has been made, often by whistle-blowing or year-end audits.

To help prevent this, the Department for Education (DfE) will be compiling a system that will monitor trust deals closely. Full details of this system will be given within the 2018-2019 Financial Handbook and will be implemented in August 2019.

Trusts have been advised to ensure that all, if any, related-party transactions are reviewed to ensure the monitoring and identifications of such deals are fully transparent and a recommendation has even been made for trusts to incorporate a review of these deals into their internal audits.

For related-party transactions worth over £2,500 a year, trust will have to ensure that it contains no element of profit, meaning that providers must only charge the underlying costs to themselves. This rule has been criticised however, because service prices can be complex, so it may be difficult to prove that the services are being provided at cost.

This restriction and monitorisation of related-party transactions at the response of the parliamentary public accounts committee still raises further questions about the need for related-party transactions and whether a blanket ban should be made on such deals.

How to avoid investigation

If you find it best to use services provided by related members of your trusts, then you should take extra care in the process, making the contract as transparent as possible. Additional checks may be put in place within your trusts to ensure that you are not breaking any of the rules established by the DfE.

Your trust may also benefit from an outsider’s perspective where they can give their opinion on how a deal looks to someone who isn’t part of the trust or aware of the process.

Do you need help?

To make sure your trust’s control processes and risk management all work as effectively as possible, SAAF Education offers a fully tailored internal audit service. Our consultants can supply termly audits to carry out a standard, half-day check, or a bespoke service to meet the specific needs of your trust.

Click the button below to request a call back from one of our consultants to discuss your requirements.

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