OBSOLETE APPROVAL

In Accounting and Financial world “Approval” is the base of transactional authenticity. The general practice is to accept “Approved” transaction as authentic and recordable. It is also assumed that “Approved” connotation also brings in the attribute of legality.?The approach of approval based transactional flow, at it appears, is fundamentally based on mis-trust or disproportionate trust on the employees of the organisation. Being Accountant one of the responsibility bestowed upon, along with recording of transaction is to maintain legality of the transaction as per rule of the land. Post Pandemic, we are going through dimensional change of Business structure, Physical movement, Operation and Office setup. It is therefore a reasonable expectation that mode of transaction approval should change too and which will be much more pragmatic and closer to propriety of expenditure. There is no doubt that advanced software and elevated E- environment does provide augmented platform for visibility of transaction but unfortunately approval is still based on hierarchical Power of Approval (POA) or Delegation of Authority (DOA). ?

?My point here is the “Approval” is still based on individual’s knowledge, believe and wisdom and necessarily the same is exercised by a person upon another person who is hierarchically superior than others. Of course there has to be a sense of proportion, budget and authenticity involved in each transactional approval but it is not understandable that in 360-degree evaluation era why these senses will not be there with all segments of employees of the organisantion.??Why not each financial transaction will not be based upon propriety across all levels involved in approval processes? If there is a question upon propriety necessary redressal mechanism can be in place but hierarchical DOA/POA is not the solution of aged old Approval practice. The practice of approval started may be, by Rajas and Nawbabs, continued by first ever corporation, East India Company, now prevalent in all most all kinds of organization, especially in Govt. set up. The question thus appear, has the existing system of approval effectively managed stopping all kinds of fraudulent activities? Obvious emphatic answer is NO. All most all Bank forgeries (unless it is Dacoity or on-line/cyber/ATM hacking) are supposed to follow approval matrix mechanism. However invariably on reported cases of misconduct it will be seen that, this approval matrix either inactive or jumped. The fundamental question is , while allowing a transaction it is known to concerned employees, the purpose and prospect of this transaction in line with laid down Business objective or it is generating some extra/ultra-Business benefit in the process to target and related parties. The individual, initiating this transaction, is the best judge here. Unless the employees of the organization are aligned to the Business causes and propriety along with ownership is fixed with a group of employees, no amount of Audit can stop the issue of misappropriation. Eventually, we will land up on to postmortem of miss deeds. There will be mis-judgement, mis-venture, mis-appropiation, and mis-management but the propriety of these transactions have to be ideally fixed with a group, which must be decentralised. Otherwise with battery of approval from lower to top of the organization will lead to utter confusion and ultimately lowest person in the chain lands up with punishment, as often seen in rail accident, poor linesman or stationmaster is shown the guillotine. Hence instead of POA/ DOA it should be cluster of employees with requisite knowledge, experience and wisdom should be in-charge of approval. The same ideally should be decentralised across organisation and geography of Business Operation.

The second aspect with conventional approval system is assumption of legality along with transactional approval. The transactional approval has nothing to do with legality or legal acceptance. However, on regular course of operation the transactions are considered to be legal to the cause of Business however if the transaction is going beyond Business that will be again clear to expert originator of the transaction, but that employee may not be higher up in the organization. The complex environment as getting generated especially post pandemic situation requires expert to vet the transaction unless the same is very rudimentary. Therefore, the second aspect of approval should be based on situation and its complication. General POA or DOA should not be answer for all and every transaction, as takes place in an organization. Rather it should be clubbed, based on its nature and complexity and accordingly the same should be taken for approval.

The Third aspect which comes for conventional approval is threshold limit. Upon a threshold limit it is generally referred to higher authority for approval, though it is originating from down the line. Following this practice, we have seen neither originator nor final approving authority, takes up due diligence of the transaction. Initial level thinks as amount is beyond threshold limit, so higher-up will see it and higher-up at times rely on convenience of reliance leading to a gaping hole in the system. Again if we go by propriety of the transactions then even if it is of bigger amount the originator of the transaction should be allowed to stop it, if there is any doubt. It should not travel to others if necessary criteria are not filled in. So third aspect of Approval system should be empowerment to the initial level irrespective of threshold limit of transactions. ??????????????????

?For approval of any expenditure it is very important to judge whether an expenditure is a cost or investment. This outlook comes from entrepreneurial outlook, however too much into this endeavor will lead to biasness. Balance is the key here. It is therefore of utmost importance to evaluate each of the transaction flow as a seeding or a routine or wasteful. This element necessarily has some futuristic aspect built in. The group approving company’s expenditure must possess this wisdom, else it will be mundane vouching job where the Babu in charge on his high moral template goes in the shoes of Caesar’s wife.?This knowledge and outlook comes only with originator or with experience. No rule,no DOA or POA can ascertain that . There will be mistakes, there will be error of judgement and for that unnecessarily punishing, may be Head of the institution, is not desirable. This will kill risk taking aptitude. This practice as often we are seeing today, may be with a motive to create an equilibrium of punishment between lower and upper section of the organization. But one mistake can’t rectify another.

All Audit comments upon internal control are based on POA and DOA but time is coming with the new Businesses on the horizon to move on to the system from delegation based approval system to information based decision making. Business like any other applied subject of study, changes its course with changing environment so the transaction which determines Business DNA should be looked and evaluated from the point of view of its Origin, intent and return to the Business. Only correct information can lead to proper judgement about approval of any transaction along with long term vision of the Business Operation. Soon we will go into a situation where no second transaction will be similar as no second day is similar to our life. The uncertainty and there by complexity of each transaction therefore is to be tacked by Information based approval system rather than delegation based obsolete approval mechanism. ??????????????????????????