Related-party transactions are among the most scrutinised items on a Nigerian board's agenda — and among the most poorly controlled. They appear in almost every business: payments to a director's consultancy, a lease from a shareholder's property company, a supply contract with a subsidiary of the parent group, a loan to a key management person. Most are legitimate. A minority are not. The board and the audit committee exist, in part, to tell the difference and to make sure shareholders, regulators and auditors can see that the difference has been told.
This is a practical guide to controlling related-party transactions (RPTs) in a Nigerian company — what the board reserves, what the audit committee tests, what management discloses, and how the policy should be structured so that it survives an FRC inspection, a SEC enquiry, an FIRS transfer-pricing review or an external audit challenge.
Why RPTs deserve disproportionate attention
Three features make RPTs a higher-risk category than ordinary transactions.
First, they sit at the intersection of company law, tax law, corporate governance and disclosure. CAMA requires interest declarations. The Nigerian Code of Corporate Governance (NCCG) requires the board to oversee RPTs. The FRC expects disclosure in the financial statements. FIRS examines RPTs for transfer-pricing exposure. SEC, for listed entities, requires shareholder approval of material RPTs. A control failure in one area is usually a failure across all of them.
Second, the information asymmetry is permanent. The party closest to the transaction is the party with the conflict. Without a controlled process, the board hears about the transaction after it has been struck, and the audit committee tests it months later, when the contract has been performed and the cash has moved.
Third, the reputational risk is asymmetric too. A clean RPT, properly disclosed, attracts no comment. A controversial RPT, poorly disclosed, dominates the AGM, the analyst call and — increasingly — social media commentary. The board cannot afford to discover RPT issues from outside the company.
What the board should reserve to itself
The board charter should reserve, explicitly, the approval of related-party transactions above a defined threshold. Three drafting points matter.
The threshold should be expressed in two ways: an absolute Naira figure (so small transactions do not consume board time) and a percentage of the company's net assets or revenue (so the threshold scales with the business). For most mid-market Nigerian companies, a threshold of the lower of NGN 50 million or 1% of net assets is a defensible starting point; listed entities follow SEC's tighter rules.
The reservation should cover not only the original transaction but also material amendments, renewals and waivers. Many RPT failures we have seen began as a properly-approved transaction that was quietly extended on different terms.
The reservation should explicitly include transactions with parties connected to directors and key management personnel, not only the directors and KMP themselves. "Connected" should be defined in the policy — typically spouses, children, parents, siblings, and entities in which the related party holds a defined interest.
What the audit committee should control
The board approves; the audit committee tests. The NCCG and the Nigerian Audit Committee terms of reference assign the audit committee responsibility for reviewing related-party transactions and the related-party register before the financial statements are signed. In practice, an effective audit committee does five things.
1. Maintain a live related-party register
Not an annual exercise. A standing register, updated by the company secretary as directors and KMP declare interests, and reviewed by the audit committee at every meeting. The register should record the party, the relationship, the nature of any transactions, the amounts and the dates of approval.
2. Test the completeness of the register
The most common control failure is not that a recorded RPT was incorrectly approved — it is that a transaction was never recorded as an RPT in the first place. The audit committee should ask, at least annually, what assurance management can give that the register is complete: confirmations from each director and KMP, a sweep of the supplier and customer master files against the related-party list, and a reconciliation with the external auditor's enquiries.
3. Test arm's-length pricing
For each material RPT, the audit committee should see evidence that the pricing is at arm's length: comparable third-party quotes, a benchmark study, or an explanation of why arm's-length pricing was not possible. This is also the documentation FIRS will request in a transfer-pricing review; doing the work once for both purposes is efficient.
4. Review disclosures
Before the financial statements go to the board, the audit committee should review the related-party note, the directors' interests disclosure and any going-concern or contingent-liability language affected by RPTs. The note should match the register; if it does not, one of them is wrong.
5. Escalate unresolved items
Where the audit committee cannot satisfy itself on an RPT, it should escalate to the board in writing, not informally. An audit committee that resolves issues quietly with management is not protecting shareholders.
The RPT policy: what it should contain
A Nigerian RPT policy that holds up to regulator scrutiny typically contains nine sections.
1. Scope and definitions — who is a related party, what counts as a transaction, what is excluded. 2. Authority and approval thresholds — what management may approve, what the audit committee approves, what the board approves, what requires shareholder approval. 3. Declaration of interests — the obligation on directors and KMP to declare on appointment and continuously. 4. The related-party register — who maintains it, who reviews it, how often. 5. Pricing and documentation — arm's-length requirements, comparator evidence, retention period. 6. Conflict-of-interest procedures — how conflicted directors are excluded from discussion and vote. 7. Disclosure — financial statements, AGM notices, regulator filings. 8. Whistleblowing and breach handling — how undisclosed RPTs are reported and investigated. 9. Review — annual review of the policy by the board.
Common failure modes
We see the same failures repeatedly when reviewing Nigerian RPT controls.
Thresholds set high enough that almost nothing reaches the board. Approval recorded in board minutes without any record of the analysis that supported it. Related-party registers maintained by the finance team without sign-off from the company secretary. Comparator evidence that compares to other related parties. Conflicted directors who declare the interest but remain in the room. Annual disclosures that aggregate by category without naming individual related parties. Each is fixable; each is also an audit qualification or a regulator question waiting to happen.
Special cases worth a board conversation
Three categories of RPT deserve a dedicated board conversation, not just a paragraph in a policy.
Group transactions. Charges between a Nigerian subsidiary and its parent or sister companies are RPTs and transfer-pricing transactions simultaneously. The board should see the inter-group services agreement, the cost allocation methodology and the most recent transfer-pricing documentation.
Director-related supply. Where a director's company supplies the business, the board should be unusually rigorous: independent quotes, audit-committee-led tender, and a clear written rationale for the appointment. The defence is the documentation; absent documentation, there is no defence.
Loans to or from KMP. Loans between the company and key management personnel are restricted by CAMA and, where applicable, by sector regulation (banking is the strictest example). The policy should require board approval for any such loan and prohibit those that are not permitted by law.
How Outliers can help
The Outliers Corporate Governance Centre publishes a working Related-Party Transactions Policy aligned to CAMA, the NCCG and FRC expectations, alongside the related-party register template and the audit committee testing checklist used in our governance advisory work.
If your board or audit committee is preparing to refresh its RPT controls, the Corporate Governance Centre is the starting point. The full governance resources library hosts the policies, charters and testing tools Nigerian boards need. The Related-Party Transactions Policy is the board-ready policy template we recommend as the controlling document, and the Related-Party Transactions Register is the working register that operationalises it.
Most RPT problems are not problems of judgement — they are problems of process. A clear policy, a live register, a disciplined audit committee and honest disclosure together resolve the great majority of them. The work is unglamorous; the protection it provides is real.