Developing a Schedule of Authority

The organization's culture, leadership style, management structure, external environment and national laws will influence the content of the schedule of authority. It is not intended to be a restraint but rather a tool for expediting processes in the interest of the company.

Who to Involve

A schedule of authority can be seen as a map of the company sub-processes, which lists all decision types, for different purpose, against the authorized positions that will perform the review and approval of the different decisions.

Individuals who receive delegated authority must be actively involved with the activity being delegated and have sufficient knowledge of the company's policies, procedures, and operating requirements to ensure an effective delegation of authority.

The Options

There are a number of different options available for developing a suitable and sufficient schedule of authority for a company. A structured way of achieving this is strongly recommended. The delegations of authority should be defined both in terms of scope, number and time frame to those positions that needs authority to achieve efficiency while maintaining accountability.

The delegations of authority can be deemed to be appropriate when the delegation will enhance the effectiveness and efficiency of the operation without risking the integrity of the internal control necessary for accountability. It is not a good practice to delegate all or substantially all of the powers assigned to any position, or where checks and balances would be eliminated by making the delegation.

The Steps

To design and document the schedule of authority for committing a company to legal obligations, financial commitments or other transactions, companies should include the following steps as an integral part of the development process.

1. Develop a hierarchy of decision criteria, also known as the decision model of the company.

2. Identify, review and standardize the company's types of decisions that form part of the normal running of the company.

3. Select the various types of decisions/approvals that will be included in the schedule of authority for the smooth operation of the company.

4. Identify the different levels of authority necessary for the smooth operation of the company by job title.

5. Classify decision maker positions into groups with approval and authority level ranges.

6. Document companywide authorization for the most common types of decisions.

7. Define the financial and non-financial decisions that will be included in the schedule of authority.

8. Assign a range of values to each type of decisions/approvals that will be included in the schedule of authority.

9. Identify the required documents necessary for providing evidence of compliance with the company's schedule of authority.

10. Document the full schedule of authority and prepare it for approval.

11. Get approval of the schedule of authority from the Board of Directors.

It is best practice that a company's schedule of authority contains a list of the most common types of commitments and approvals required by each identified level. It should be defined whether an alternate relieving in any particular post will have the same power of authority than a full time incumbent. This information must be recorded and communicated to all the affected parties to minimize misunderstandings.

Reviewing

The schedule of authority is normally reviewed and amended annually to reflect any changes in the company's management practices. The revised schedule is submitted to the Board of Directors in its entirety for their consideration and approval.

It would be useful to the Board of Directors to attaché a list of changes requested where the previous authority level is listed against the new level.

Controls

It is standard practice for the party who is delegating to maintain proper control and management of his responsibilities. This party remains accountable for all actions taken as a result of the delegation. The party giving the delegation will normally implement and maintain appropriate internal control measures. This may include separation of duties, reviewing reports, sampling completed transactions and monitoring the effectiveness of the controls established. Regular audits of the delegated processes and activities conducted by an independent internal or external party are the norm.

Limitation

A standard rule is that delegated authority may not be used to approve transactions for the benefit in any way of the person, or their relatives, receiving the delegation. It may also not be used to create a conflict of interest with the delegate's responsibilities in the company. Such transactions/decisions must normally be pre-approved and countersigned by another authorized person, usually the person of next higher authority.

There must be a separation of duties between the approval of expenditures and the reconciliation of departmental financial accounts. Delegates may not be the person solely responsible for reconciling/verifying the expenditures with the department budget. Departments with very few staff that are unable to segregate duties may need to involve the appropriate functional department to assist with the implementation of alternate internal control measures.

Conclusion

Most companies have a schedule of authority of some sort. In most this schedule only contains financial authorities that the Board of Directors pass on the executive team, however any listed company has a responsibility towards it shareholders to ensure that the company is run in a businesslike manner. This implies that other non-financial authorities should also be included the approved schedule of authorities.

A comprehensive schedule of authority that takes the company specific needs into account and that is build on a transparent set of rules will significantly improve the ability of companies to execute the management responsibilities and to respond to treads and opportunities in a responsible manner.

© Carl Marx