Developing Financial authority norms or manual
The purposes of having a financial authority manual are the following.
This blog includes the following aspects related to financial authorisation.
?AA) The standard payment remittance methods and Segregation of duty approach to prevent unethical activities
BB) List of 11 (eleven) activities -for Developing authorisation norms or manuals for all functions -
?CC) Template 1 For authorization norms for the purchase function -1illustration
DD) Template 2 for authorization norms for the sales & marketing? function- 3 illustrations
EE) Template 3 for authorization norms for activation of various documents in ERP-2 illustration
FF) Template 4? Authorisation and activation of PO/Agreements (by F&A team)originating from Finance and accounts function+ Journal Vouchers -2 illustrations
GG) Template 5 authorization norms for payment release PV+ Payment realisation against sales invoices the F&A? function -2 illustrations.
HH) Activities(including unethical) that can affect business adversely.
Details ?
AA)The standard payment remittance methods
?The payment remittance methods for imports are summarised below.
The payment remittance methods for local buying are summarised below.
?BB) List of 11 activities -for Developing authorisation norms
Activity 1
Providing policy directions/directives to CFO and HODs regarding empowerment based on the risk appetite- Responsibility: CEO/MD
?Activity 2
?Designing Structure/contents of the authority document /manual ( please refer to templates below) Responsibility: CFO
?Activity 3
?Identifying function-wise workflows and documents of each function that need to be authorised. Responsibility: CFO +HOD of each function
Forty six ?(46) examples of high-value financial documents vis-a-vis workflows in each function are listed below.
Purchase or materials functions: (4 documents)
Manufacturing or engineering functions? (3 documents)
?Quality control/Quality assurance functions (2 documents)
IT/ERP /software (3 documents)
Legal functions (5 documents)?
Finance & Accounts function –(12? documents)-PO or agreements or other accounting documents etc related to
. In the SAP, 12 types of accounting documents are
Construction project functions (4 documents)
Standard to all functions (2 documents)
?Activity 4
a)Identifying corresponding financial workflows & documents that need to be authorized in ERP , as applicable vis a vis functional documents mentioned above in each function. Responsibility: CFO
?A few of these are listed below.
i)Purchase vouchers
ii)Journal vouchers
iii) Sales vouchers
iv)? Debit notes/Claims?
Activity 5
?a)Proposing authority norms for each of the above types of documents in consultation with the HOD of each function. Responsibility: CFO
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b) Ensuring segregation of duties while proposing these norms based on
c) Authority levels should be preferably level/position based rather than employee names due to the dynamic movement of employees like promotions, transfers, exits, retirements, etc.
d) Review of the authority document by a cross-functional team comprising all key functions to ensure there will be no conflicting situations while implementing authority documents
Activity 6
Approval of authorisation document as above in consultation with CFO and concerned HOD of respective function. Responsibility: CEO/MD
Activity 7
Maintaining controlled original approved financial authority documents or financial authority manual. Responsibility:CFO
Activity 8
a)Controlled circulation of the CEO/MD approved financial authority document through hard copies or soft copies to HOD of respective function for implementation Responsibility: CFO
b) Forwarding a copy of the CEO/MD approved document to HOD-IT/ERP for planning workflows and embedding these in business processes in the respective modules like
And so on
Activity 9
Ensuring that?? authority documents become a part of the SOP of? each function
Responsibility: HOD-Each function
?Activity 10
Responsibility: CFO
Activity 11
a)Software programming or using workflows (in addition to or alternate to hard or soft copies) in IT/ ERP package solution to incorporate all empowerments mentioned above with inputs from the CFO?
b)Getting such workflows tested and approved by respective HOD+CFO
c)Providing training to all key team members nominated by HOD for smooth implementation of the authority norms
Responsibility: HOD-IT/ERP
?CC) i) Illustration of 5(five) authorization Templates as below to be populated as per activities mentioned above :
CC ii) A Robust system must ensure that the segregation of duty approach is followed to minimize risks of unethical activities in the financial approval system. C
CC iii)These concepts have been used extensively in 5 (five) templates, clearly stating the following.
?CC Iv) Template 1- For authorization norms for the purchase function-1 illustration
?Template 1 will have seven columns under
Column 1= Descriptions/Document to be authorized, Column 2=UOM, Column 3= currency, Column 5=Initiated by,Column 6=? Reviewed by, Column 7= Approved by?????????
It will have a need-based no of rows such as
Authorization for the below has been documented in my Blog ?and in book at the below links, and hence, it is not being duplicated. ????????
Book Link:
Paper back-amazon link: India
Book -paper back-Amazon link-Global
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This template includes one illustration of authority norms for the following documents.
1a. Purchase order for individual Bill of materials -BOM or aggregates (items that make product), including orders on job workers and subsequent amendments in rates or terms within the purchase policy terms (Highlighted in note )with different rates
1b. Purchase order for individual Bill of materials items beyond 1 year of consumption or outside purchase policy terms
Different hierarchical levels have been proposed for col 5, col 6, and col 7, depending on the rates, etc, as a combination of:
??? 1. Sr officer, 2. Dy Mgr 3. Mgr 4. DGM (Deputy General Manager) 5.GM (General Manager),6.Director/CEO, and so on
Notes to the template 1:
1.???? The descriptions/documents, values, currency, etc., indicated in columns 1, 2, and 3 are only for understanding. Organizations can indeed amend these at their absolute discretion.
Separate norms can be for different currencies. Different hierarchical norms can be prescribed? for approving PO of different categories of items like steel, aluminum, electronic , proprietary…..etc??
2 The financial limit in col 4 is hypothetical and can be amended at the discretion of the CFO/Management
3 The designations in columns 5,6 &7 are hypothetical and will be at the discretion of the organization, based on how lean the organization.
The designations in columns 5,6 &7 (1. Sr officer, 2. Dy Mgr. 3. Mgr. 4. DGM(Deputy General Manager) 5. GM (General Manager),
4 Purchase policy may include aspects such as: a). Advance payments without Bank guarantee, b) Comparative quotes, c) Credit periods, d) Prior-Sample approval, e) Buying from a single source, f) Air freight, g). Order quantity beyond I-year consumption, h) Buying of discontinued items, etc., i) Cash purchase limits, j) Warranty, and so on
? 5. Standard Agreement may include aspects/terms relevant to buying of material
6. Director/CEO )and so on are hypothetical and will be at the discretion of the organization, based on how lean the organization is and can be amended as per the discretion of the organization
DD) Template 2 for authorization norms for the sales and marketing function-3 illustrations
The Template 2 design, in terms of columns, is the same as Template 1.
This includes three illustrations for authority norms for the following documents.
The rows will have the following types of descriptions in rows.
1a Channel partner engagement letters/MOU or agreements with -Policy guidelines (Highlighted in note 1)for such engagement.
1b-Any Deviation to policy (e.g. evaluation score, investments, size, infrastructure, etc )
2a-Agency commissions to authorized channel partners- as per Agreement and policy guideline as per? note )
2b-Any Deviation to policy( e.g. % or amount/unit or no/incomplete remittance to company or earlier than credit period? or product billed but held back etc) ?
3a-Incentive claims of channel partners- In accordance with the authorised incentive scheme and evidence of accrual of sales benefit and accomplishment of targets.
3a-Incentive claims of channel partners -In accordance with authorised incentive scheme and evidence of accrual of sales benefit and accomplishment of targets
?Notes to the template 2:
Points 1,2,3 are precisely similar to those in template one and, hence not being duplicated
Pointy 4 Channel engagement policy may include aspects such as :
a) Minimum score on standard evaluation parameters for the agency,
b).Size of plot/building/layouts
c) Investment norms for Building infrastructure for sale of products?
d) Investment norm for? After-sale service infrastructure
e) Skilled Manpower norms
f) Initial Spares buying value norms
g) Spares stocking policy? norms
h) Signage /Display standards investments /norms??
i) Financial security deposit?
j) Experience in similar dealership
k) Territory for sale /service
l)Product models permitted
m)? % commission payable on net sale value or Rs/unit sold and so on
?Point 5. Guidelines for the Agency Commission may include aspects like
a). % commission payable or Rs /unit sold
b) Evidence of shipment. Received by customer
c) Sale realization amount transferred to company
d) Selling price invoiced to customers as per approved lists
e) Sales return within prescribed period f) Credit period on agency commission.
Point 6 . Standard Agreement/PO may include aspects/terms related to sales and marketing
EE) Template 3 for authorization norms for activation of various documents in ERP-2 illustrations
?The template three design, in terms of columns, is the same as template 1This includes two illustrations for authority norms for the following documents listed in rows
1Activation of approved PO/Agreements? in the ERP/SW? for release of payments towards Supply of :
·?????? Other expenses /reimbursements
2 Activation of approved agreements of MOU/Channel partner, Dealer or Customers /client towards Sale of products, spares, rendering of services? for payment release towards
·?????? other expenses/reimbursements
Notes to the template 3:
Points 1,2,3 are exactly similar to those in template one and hence not being duplicated.
Point 4. For segregation of duties & simple understanding, three types of sub-functions have been assumed and, accordingly designations indicated in the above table.
Of course, organizations can add more/delete/edit such designations.
Point 5. The PO/Agreements that have not been approved as per approved authority norms must not be activated in ERP/SW till ???amended
Point 6. It is desirable that all PO/Agreements beyond a threshold value, say beyond Rs 1 Lac, are also vetted by the Legal and secretarial team
FF) Template 4? Authorisation and activation of PO/Agreements (by F&A team)originating from Finance and accounts function+ Journal Vouchers -2 illustrations
The template four design, in terms of columns, is the same as template 1This includes two illustrations for authority norms for the following documents listed in rows
1a- Consultancy related Agreements with Advisors, Consultants or &? legal advocates? or &? investment brokers or &?? merchant bankers & underwriters or & Registrars etc
1b)-Activation of above-approved agreements in ERP/SW for payment release or investments
2a) Borrowings/investments related. -Preparation of proposals or & Bids, Negotiations and approval of agreements such as below as per policy direction of board sub-committees:
And so on
2b) Deviation to the above
2c)-Activation of above-approved agreements in ERP/SW for payment release or investments
?Notes to the template 4:
Point 1,2,3 are exactly similar to those template one and hence not being duplicated
Point 4 PO/Agreements are not to be activated if these are :
GG). Template 5 authorization norms for payment release PV+ Payment realisation against sales invoices the F&A? function -2 illustrations.
?The Template 5 design, in terms of columns, is the same as template 1This includes two illustrations for authority norms for the following documents listed in rows.
1a Payment vouchers for payment release to? vendors, contractors, consultants subject to 3-way matching of:
?????? This includes purchases initiated by? any functions
2a. Sales voucher for payment realization against invoicing of products or spares or services to direct customers or channel partners subject to 3-way matching of:
Invoicing as per approved Prices/credit and shipping terms
HH) Activities(including unethical) that can affect business adversely
i)Size of organization
ii)Hierarchical levels & positions
iii)The complexity of business processes
iv)Degree of automation
v)The risk appetite of the company for empowerment
vi)Ethical environments /culture in the company
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