Transactions with trustees

General guidance

The Charity Commission has the power to approve the payment of trustees in particular circumstances and has issued guidance on the subject: Trustee expenses and payments. The guidance sets out the underlying charity law principles and the processes a charity should follow if it intends to make payments to trustees.

In parallel, Accounting and reporting by charities: statement of recommended practice (2005) (Charities SORP) (paragraphs 230 to 233) describes how payments should be disclosed in audited financial statements of registered charities. The Statement of recommended practice: accounting for further and higher education (F/HE SORP) does not cover the topic, although the discussion of related party transactions (paragraphs 230 to 233) touches on members of governing bodies. Interim guidance was published in a newsletter by the British Universities Finance Directors Group (Adobe PDF 56K) (BUFDG) in 2009.

Neither the Commission's guidance nor the Charities SORP can be applied directly to the higher education sector because so many staff are members of trustee (governing) boards. Equally, BUFDG's interim guidance does not cover all of the transactions that higher education institutions (HEIs) have with their trustees.

Finally, over the last few years the Privy Council has approved changes to constitutional documents giving a growing number of HEIs the power to pay trustees for serving as trustees. Some HEIs have already made such payments.

Types of transaction

There are three types of transaction that an HEI might have with its trustees:

• expenses paid to or on behalf of trustees
• payment for services provided to the HEI by trustees
• payment for serving as a trustee.

In principle, payment of reasonable expenses is uncontroversial. Trustees should not be out-of-pocket as a result of their trusteeship. HEIs should have rules and processes to control these payments. Payment for services is permitted under the terms of the Charities Act 2011, as long as it is not prohibited by governing documents. Again, HEIs would usually process such transactions through their normal procurement and payment systems which should already ensure that potential conflicts of interest are recorded and properly addressed.

But, in the Charity Commission's view, payment for serving as a trustee may only be made if 'it is clearly in the interests of the charity and provides a significant and clear advantage over all other options, and better helps it achieve its charitable purposes'. While making it clear that voluntary trusteeship should be the norm, its guidance indicates the Commission's willingness to consider approving such payments. It has done so several times for HEIs, and has agreed Download as Remuneration of trustees model documentation for the remuneration of trustees (Adobe PDF 55K) with the Department of Business Innovation and Skills to simplify the approval process.

Disclosure of transactions with trustees

HEFCE's Financial Memorandum with HEIs requires exempt-charity HEIs to include in their audited financial statements 'information about payments to or on behalf of trustees, including expenses; payments to trustees for serving as trustees (and waivers of such payments); and related party transactions involving trustees.'

We consider that these disclosures will enable HEIs' trustees to demonstrate transparency and reduce reputational risk. They are consistent with our duty to promote compliance by trustees with their obligations under charity law.

We expect HEIs to disclose, in notes in the audited financial statements, the following information about each type of transaction with their trustees:

• Expenses paid to or on behalf of trustees

  • The total amount of expenses paid to or on behalf of the trustees as a whole. (For trustees who are employees, this only applies to expenses when serving as trustees.)
  • The nature of the various expenses.
  • The number of trustees involved.

  It is not necessary to include routine expenditure on services provided for the trustees collectively, such as room hire or reasonable refreshments at meetings.

  Materiality: The total amount disclosed should be rounded to the nearest £1,000.

• Payment for serving as a trustee

  • The amount of all payments and other benefits to each (named) charity trustee who is not an employee of the HEI.
  • Details of all waived entitlements to such payments and other benefits.
  • The authority for such payments.
  • If there are no such payments, an express statement to that effect.

  Vice-Chancellors, principals, or equivalents are almost always members of the governing body of their institution, and so trustees. Their remuneration is already disclosed in the staff costs note and does not need to be repeated.

  There are usually other staff governors and/or trustees, who are paid as employees of the HEIs but who are not paid as trustees, and whose remuneration is not disclosed (although some individuals may be included in the higher pay band numbers in the staff costs note). This feature of HEI governance arrangements is not covered by guidance elsewhere. Although we do not require disclosure of these individuals’ remuneration, we consider that it is good practice to note the fact of employment, and (if it is the case) that there is no supplementary payment for trusteeship.

  Materiality: The total amount paid to, or waived by, each individual trustee should be disclosed to the nearest pound.

Since neither of the above types of payment are staff costs, it is likely that the disclosures will form part of the note or notes analysing 'Other operating expenditure'. A separate note might be appropriate.

• Payment for services provided to the HEI by trustees

  • The amounts and details of payments for services, other than under a contract of employment, provided by each trustee to the HEI, including payments to trustees’ connected persons and/or businesses.
  • The authority for such payments.
  • If there are no such payments, an express statement to that effect.

  HEIs already maintain registers of interests of trustees and senior managers, and should be monitoring transactions to ensure they comply with best procurement practice. 

  HEIs should avoid pro-forma statements to the effect that transactions have taken place, but are carried out on arms-length terms. 

  HEI governing bodies usually include one or two current students who are often trustees of the independent students' union (SU) at the HEI. Transactions between the HEI and the SU are thus disclosable as related party transactions. 

  Related parties of HEIs' trustees will also need to be included in these disclosures, in accordance with normal practice.

  Materiality: The total amount paid to each individual trustee/related party should be disclosed, rounded to the nearest pound.

This will form part of the related party transactions note. 

Further information

• Trustee expenses and payments
• Accounting and reporting by charities: statement of recommended practice (2005)
• Statement of recommended practice: accounting for further and higher education
• Model documentation for changes to governing documents to enable payment of trustees as trustees (Adobe PDF 55K)
• Revised 2009-10 Accounts Direction
• Model Financial Memorandum between HEFCE and institutions