Related-party transactions are not automatically prohibited, but they create higher scrutiny because personal or organizational relationships can influence procurement, hiring or contracting decisions. NGOs should identify these relationships early and document why any transaction remains appropriate.
Know what counts as related
Related parties can include board members, senior staff, family members, controlled businesses, affiliated organizations or entities with shared ownership. The exact definition should follow the organization’s policy, accounting framework and donor rules.
Require disclosure before the decision
Anyone involved in the transaction should disclose the relationship before supplier selection, hiring or contracting is finalized. Late disclosure weakens the control because the person may already have influenced the process.
Use independent review
Where a related-party transaction is allowed, use an independent decision-maker or committee and document price reasonableness, competition where applicable and why the arrangement is in the organization’s best interest.
Keep donor requirements visible
Some grants require prior approval or impose restrictions on related-party transactions. Internal approval cannot override a donor prohibition. Check the agreement before proceeding.
Use a grant conflict-of-interest register to document relevant relationships and management actions.
Useful file documents
- Conflict or related-party disclosure.
- Independent evaluation.
- Price or market comparison.
- Approval record.
- Donor approval where required.
- Contract or agreement.
- Performance evidence.
Example
An NGO needs design services and one bidder is owned by a board member’s sibling. The relationship is disclosed, the board member takes no part in the decision, competing quotations are reviewed and the final approval is documented. Whether the supplier can be selected still depends on the organization’s policy and donor conditions.
Review patterns across the year
Even individually approved transactions can create concern if the same related supplier repeatedly receives work. Periodic review helps leadership assess whether the pattern remains reasonable and transparent.
What to do next
Use the Funding Readiness Self-Check to identify governance and control gaps that may affect donor confidence.
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Review related-party terms for fairness
If a related party is permitted to provide goods or services, compare pricing and contract terms with the market where practical. The organization should be able to show that the arrangement is reasonable and not simply favorable because of the relationship.
Keep the disclosure current
Relationships can change during a grant. A board member may acquire an interest in a supplier, or a staff member may become connected to a partner organization. Update disclosures when circumstances change rather than relying only on an annual form.
Use patterns to strengthen governance
If related-party transactions occur frequently, leadership should review whether procurement and governance arrangements still provide enough independence. A transparent register can help the board see where additional oversight may be appropriate.
Reflect related-party risks in annual declarations
Annual declarations can provide a baseline, but they should be supplemented by transaction-specific disclosure when a real decision arises. This avoids relying on a form completed months earlier that may not capture the current relationship.
Where related-party transactions are significant, consider including them in board or audit-committee reporting so governance bodies can see the cumulative exposure rather than only individual approvals.
Where accounting standards require related-party disclosure in financial statements, reconcile the grant-level register with the organization’s wider finance records. This helps avoid inconsistent reporting across donor, board and statutory documents.
Keep the related-party review proportionate but consistent so similar transactions receive similar scrutiny across different grants and departments.
At year-end, compare the related-party register with procurement, payroll and partner records to identify transactions that may have been missed during routine disclosure. This cross-check strengthens governance reporting and helps ensure the register is complete.
Frequently asked questions
What is a related-party transaction?
It is a transaction involving a person or entity with a relationship to board members, staff, management, or another party that could influence the decision.
Are related-party transactions always prohibited?
Not necessarily, but they require careful disclosure, independent review, fair pricing, and compliance with organizational and donor rules.
Who should approve them?
Use the appropriate independent authority under the conflict-of-interest and delegation policies, ensuring conflicted individuals do not control the decision.
What evidence should be retained?
Keep the disclosure, conflict-management steps, pricing or market evidence, approvals, procurement records, and any donor consent required.
Why are these transactions sensitive?
They can create real or perceived self-dealing risk and may undermine donor confidence if not managed transparently and independently.
Conclusion
Related-party transactions require stronger transparency than ordinary purchases. Your organization should disclose the relationship, remove conflicted decision-makers, document fair value, and follow both internal and donor approval rules.
