What is a related party?
The principal issue in determining whether or not a person or an organisation is a related party is the degree of control exerted by one party over the other. This can arise during a financial period where:
· one party has direct or indirect control of the other party
· one party has influence over the financial and operational policies of the other party; or
· the parties are subject to common control or influence from the same source.
Put simply, the objective is to identify any transactions that may have taken place as a result of the control or influence exercised by one party over another. The concern is that such transactions may not be, or may not be perceived to be, in the best interest of the council.
Are family, household and business interests affected?
Yes. When considering who is a related party, regard is also taken of transactions involving members of the close family or same household of any individual listed. For the purpose of related party transactions, “close family” would include (but not be confined to) a spouse, parent, child (minor or adult), brother, sister, or the spouses of any of these.
In addition, if any individuals are associated with partnerships, companies, trusts or any entities in which they, or a member of their close family or the same household, have a major interest, transactions with that organisation should also be disclosed.
Examples of qualifying interests
Examples of qualifying interests that may give rise to relevant transactions are:
· you own a company or have a major share holding in a company that contracts with the council
· your close relative or member of your household owns a company or has a major shareholding in a company that contracts with the council
· you hold a position of influence within a voluntary organisation that receives grants from or provides services for the council
· you, a close relative, or a member of your household, are in receipt of income from an organisation that relies upon funding from the council, e.g. a voluntary group.
No specific limit has been given for what constitutes a major shareholding but, as a broad guideline, more than 20% of the total should be taken as coming within the scope of these requirements.
Examples of relevant transactions
The transactions that need to be considered for disclosure include such items as:
· payments under contract for the purchase or sale of assets, e.g. land transactions or equipment supplied to the council
· payments under contract for the supply of services to the council, e.g. printing or building contracts or the management of council services
· payments or loans to chief officers of an exceptional nature not covered by normal contracts of employment.
In addition, non-financial transactions need to be included, such as:
· the provision of a guarantee in relation to a liability or obligation of a related party, e.g. a loan guarantee to a sports club in which a member or chief officer holds a position of influence
· the reduction or waiving of a charge for services, e.g. free use of facilities for particular individuals or groups.
Example declarations could include:
· “I am a director of Cyclepaths Unfurled plc and contracted with Southwark for about £500,000 worth of works in 2011-12. My husband is a trustee for Southwark Cyclists who receive a council grant of £5,000 in addition to rent free premises.”
· “My son owns a third share in a music shop Drum Deals who sold instruments to Southwark schools to the tune of £10,000 last year.”
· “I am a trustee of the Southwark Poet’s Society who might receive funding from the council. My partner’s business Flourish Brochures provided printing services worth £20,000 to the council during 2011-12.”
Are there any exceptions?
Yes. Where transactions are common to all individuals, they need not be declared. For example, there is no need to declare payments of member’s allowances. Additionally, council tax, rent or housing benefit payments are transactions that would occur regardless of whether the individual was a related party to the authority.
The above principal can be applied to cover any payment or benefit that arises under circumstances for which there is a statutory scheme or for which the council has established eligibility criteria, e.g.:
· housing renovation grants
· mandatory or discretionary student awards
· planning consents; or
· provision of care services.
Is what I declare likely to be disclosed in the council’s accounts?
Generally, it must be assumed yes, though disclosure will not be required in the Accounts when the dealings between the council and related party are judged to be immaterial. However, in assessing the materiality, the chief financial officer has to make that assessment not only in terms of the significance to the authority, but also in relation to the related party. Consequently, a figure, whilst not being material to the council’s balance sheet would be disclosed on the basis of its materiality to the finances of the individual concerned. If it becomes likely that an individual’s details need to be disclosed in the accounts, a draft of the proposed disclosure will be provided to the individual for comments prior to publication. In general, individuals’ disclosures are aggregated rather than being shown separately in the accounts.