Approval Authority Limits

[josephteh]

My boss asked me to set up approval limits for individuals on spending, trade purchases and capex.

Are there any guidelines available?

What kind of % of total monthly purchases should be used to set the limits for the purchasing manager?

How about Capex? Maybe a certain % of existing capex costs can be approved at CEO level?

Appreciate any help... Thanks!

Joseph

 

[kirby]

Approval limits are a great idea. It clearly delegates authority. I suggest your general guideline be to NOT set them so low that people have to run around to get an OK for "normal" costs and NOT so high that the limits are meaningless. So, you need to get an understanding of what is normal. You can review existing expenses and interview folks who would be subject to having a limit asking them what would be an appropriate limit. Then put it on paper and run it by your boss and ask for boss's review.

 

[josephteh]

Thanks, kirby! Thank you so much for your very good suggestion.

I was looking for broad guidelines.

Anyone can suggest some broad guidelines?

 

[bklynboy]

Kirby's advice is a solid start.

Guidelines are specific to each company and require an analysis of spending habits in each area as to what is normal and where higher authority is required for approvals. There is a lot of information on the web - one of which I attached. Basic concepts can be found as a starting point but I recommend you review historical spend levels by area to determine the "norm" for expenses that can be approved in each department and where senior level approval is needed above these limits. I also recommend a workflow approach to facilitate the approvals so that it becomes more difficult to circumvent the policy instituted.

Creating a Delegation of Authority Policy

 

[josephteh]

Thanks so much, bklynboy! You guys are awesome!