Archive

Posts Tagged ‘schedule of authority’

How well documented are your internal controls?

July 29th, 2008 Comments off

     Regardless of the size of organization you might be managing, one of the best documents that you can have in place is the one that sets the groundrules for spending and entering into commitments on behalf of the company.  Depending on the company, this document can be referred to as a Schedule or Delegation of Authority.  I’ve learned to refer to it as the D.O.A. (no pun intended for those that do not adhere to the guidelines…..).  This is the document that doesn’t leave anything to chance regarding approval levels and notifies each managing level as to their spending / commitment capabilities.

     The typical Delegation of Authority will state the purpose & applicability of the document and covers the ground rules for executing documents, engaging in binding agreements, or approving material decisions on behalf of the company.  This document will typically break decision makers into primary categories, which individually address Managers, Directors, Vice Presidents, and Executive Officers.  Considering the wide scope of purchases that could be covered by such a document, it usually tries to cover those areas that could have a materially negative impact on the company.  These areas might include leases, service contracts, capital expenditures, credit limit authorizations, or check signing authority.  Keep in mind that these are only a sampling of the areas, and depending on complexity of the organization, may involve dozens of areas to specify.  Further, depending on the global footprint of your company, this should also be coordinated with all foreign offices.  In one particular version that we drafted, orders of certain magnitude were required to be approved by the Chairman to ensure that appropriate margin levels were achieved and key global managers were also aware of the transaction.

     If you’re currently operating without a DOA, then now may be the perfect time to address this area and start putting together that first draft.  There won’t be a single version that you’ll draft and distribute. This is a dynamic document that will continue to evolve as your company grows and hopefully begins moving into new segments.  I’ve been mentored by some fantastic Finance professionals and the constant message has been one of paranoia.  What’s going to get you next?  This is one additional tool that will hopefully mitigate adverse reactions on the part of employees, that while not intentionally malicious or fraudulent, could have a material effect on your results.  And that’s really what this document is about…increased communication throughout the company.

Thanks for reading . . . .