Creating a delegation of authority policy defines the limits of authority given to individuals within a company. It establishes the approval thresholds and transactions allowed at each level.
To develop a delegation of authority policy, effective company executives define and document the policies and procedures that restrict the approval of transactions (typically by financial value) to specific individuals. These procedures identify who has approval for specified financial transaction amounts, as well as who can be assigned temporary authority in the event a manager is out of the office. The policy specifies what types of documents are required for completion by employees executing contracts, such as proposals, approval forms and memos. Additionally, the policy must specify how it can be amended, in the event unforeseen business conditions arise.
The delegation of authority policy should describe the types of banking and investment transactions conducted by the company and who has the authority to approve them. For example, only executives at the highest level are typically authorized to borrow money, grant liens or enter into new credit or borrowing agreements. Similarly, only these executives can open or close bank accounts and extend letters of credit or bonds. The policy must also identify who has the authority disclose financial information about the company, typically the top executives.
The delegation of authority policy should describe the rules associated with spending. For example, contracts, including purchase orders, should only be approved when the associated forms have been completed properly. The policy sets the authority levels for expenditures, such as operating expenses. For example, the company president must approve all expenses above $10,000. All other general and administrative expenses must be approved within the departments. Additionally, the policy should specify when special counseling is required, such as matters related to legal or insurances. Using delegation skills, policies should also specify a financial value at which all expense reports must be approved by an executive. For example, all travel expense reports of $5,000 or more typically require approval by a corporate vice president.
The delegation policy should describe who can sell company assets, such as equipment or real estate, and at what financial values these approvals are required. The policy should stipulate that all sales must be made in compliance with the company’s standard terms and conditions. Compliance with legal regulations, such as the Foreign Corrupt Practices Act, must be maintained.
The authority policy should also describe who can hire and fire staff. For example, all employee agreements must be approved by the senior executives. All bonuses, incentive plans and severance agreements are typically approved by the top corporate executives, with advice from legal counsel. Additionally, limits on the time periods of consulting contracts should be indicated. For example, consulting contracts that extend for more than six months should require vice-presidential approval.
By documenting the approval levels within a company, an organization creates a delegation of authority policy that dictates how the company is run. Effective executives ensure that all employees are aware of the policy by providing training and support on how to interpret the policy consistently. When required, the document should be updated and re-distributed to ensure the company functions effectively and violators are dealt with by disciplinary action, including termination.
Reference and Image Credit
"Delegation of Authority Policy." KnowledgeLeader - A Resource for Internal Audit and Risk Management Professionals. http://www.knowledgeleader.com/KnowledgeLeader/Content.nsf/Web+Content/PoliciesProceduresDelegationofAuthority (accessed April 11, 2011).
Image Credit: Wikimedia Commons, Everaldo Coelho