Related Parties

Information and Guidance on Related Parties

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, which 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 interests of the Council. 

Are family, household and business interests affected? 

Regrettably 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. 

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 which might give rise to relevant transactions are:

• You own a company or have a major shareholding 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 for or provides services for the Council. 
• You, a close relative, or 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 which need to be considered for disclosure include such items as:

• Payments under contract for the purchase of 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 the Member 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. 

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 Council Tax, Rent or Housing Benefit which are transactions that would occur regardless or whether the individual was a related party to the authority. 

This principle can be applied to cover any payment or Benefit, which 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. 

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 Section 151 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 authority’s balance sheet, would be disclosed on the basis of its materiality to the finances of the individual concerned.  If any disclosure becomes likely, a draft of the proposed disclosure note will be provided to the individual for comments prior to publication. 

What form will the declaration take?

Each year, you will be asked to sign a form of declaration. If you have related party transactions to disclose, the form asks for brief details of the transaction and the sums involved.