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Context: Delegation of authority policies are an important part of good corporate governance and critical for companies structuring and implementing financial controls and setting limits for spend authorization as well as payment approvals. Financial authority policies cover employees inside and outside of treasury and other finance teams, and at some companies they are wide-ranging.
- “Our authority policy has more than a dozen sections covering all kinds of limits,” one member told NeuGroup Insights this week. “Treasury’s limits address things like authority to open bank accounts, move cash, authorize FX trades, issue debt, etc. Having all of these requirements is part of a healthy control environment and avoids issues that can arise like failure to segregate duties and also mitigates fraud risk.”
Member question: “At your company, what are the CEO and CFO spend authorization limits? I’m trying to help our chief accounting officer do some benchmarking on our financial authority policy to rightsize some limits.
- “As a reference point, at my company, the CFO must approve spend—a commitment to an external party—over $2.5 million; and anything over $20 million must go to the CEO.”
Peer answer 1. “All payment processing with SAP via banks and also budgeted spend needs dual approval. VPs outside finance have up to $250,000 authority. Finance VPs, who are CFO delegates, can approve and release via our bank up to $10 million.
- “From $10 million to $20 million requires approval from the chief accounting officer and the CFO. The CFO can approve up to $40 million and would need second approval from the CEO.”
Peer answer 2: “All VPs have authority up to $1 million and there is authority below that level up to $250,000. From $1 million to $2 million requires a division president or the general counsel or a corporate VP or SVP and the corporate controller. Above $2 million requires the approval of the CEO or CFO and they have discretion up to $25 million, at which point it has to go to the board.
- “For a company of our size, with revenue below $5 billion, limits of $25 million make sense (and this is a per expense approval) because anything bigger than that is probably going to have awareness at the board level.
- “We want to be sure that the divisional teams have financial discipline on spending and understand that we need to consider what is best for the entire company, not just specific divisions.”
Peer answer 3. “The CFO can approve anything up to $2 million; and the CEO approves anything over that amount. Let me caveat that we are founder-led, which I think makes a difference in terms of limits based on other companies where I have worked.
- “With lower limits, you run the risk of a bottleneck at the top. You’ve got to have a good process and a good connection to the top to get past potential bottlenecks.”
Peer answer 4: “Purchase orders, invoices and contracts of $10 million and up require CEO approval; above $1 million needs CFO approval. FP&A managers approve anything below $25,000; FP&A directors approve up to $100,000.
- “Once invoices are fully approved, automatic payments only require one treasury approval for liquidity purposes. If payments have to be made manually, an accounting or treasury manager enters them and a senior manager in treasury, the CFO or I can approve without any limits.”
