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Approval limits for cash payments?

We are a large electrical coop with $9B+ in assets. We are reviewing our policy dictating the dollar amount requiring additional approval for payment by a senior member of management (SVP or higher). We would like to compare our current limit ($10k) to that of other companies. Would you mind sharing your approval limit requiring approval by a senior management member? Please give an indication of your company size.

Answers

Ernie Humphrey CTP
Title: CEO & COO
Company: Treasury Careers
LinkedIn Profile
(CEO & COO, Treasury Careers) |

On some level it is a matter of your risk culture, when I worked at a $500 Million company it was $5K. Also, it depends on the administrative costs associated with lowering the limit.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I say drop the "floor" and require a one level up (from the $$ amount requirement) approval for "cash" payments. Payment in cash is an additional risk and the required approving authorities should also reflect that.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
Are you actually paying out bills or stored value cards to settle AP Invoices?
In 2015 the need to pay actual cash sounds somewhat weird and has certain inherent risks around proving payment is received by payee.
If you use SV cards, your controls also need to apply to inventory of the cards and proving activation by the intended recipient.

What I have seen is this:
Apply the right level of controls at the PO and invoice approval level, then approving payment is less of a need as the funds were approved to be spent earlier.
When it comes to payments, the total amount to be paid to a vendor in a specific payment run may be subject to a 2nd review/signature by someone outside AP and Treasury to insure division of duties and a second check that large amounts are valid.

What prompted the policy review? A breakdown in controls?

Hope that helps.

Anonymous
(Assistant Treasurer) |

We are not disbursing physical cash. All payments are made via check, wire, or ACH. The majority of payments are made by ACH, but the largest dollar amounts (98.5% of all $ disbursed) are by wire.

Anonymous
(Assistant Treasurer) |

Clarification - These payments are normal payments via ACH, wire, or check, all of which constitute a release of cash. The volume of payments requiring officer authorization for the release of funds has become extremely large, and that has prompted us to consider raising the limit requiring the release authorization. I am curious whether or not other companies require an additional release, outside of treasury, once payments have been properly approved with correct approval limits and cash availability verified.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Anon
One way to reduce volume of payments is to reduce the number of times you generate payment runs (ACH, checks or other). That way you may increase the amount of each vendor payment, but the number of payments will reduce.
And, if the invoices to be paid have already been approved, then you can stratify payments for a 2nd review less frequently.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I think that having a separate "release" approval is redundant and unneccesary.

I would only look at a system that includes a "release" approval if the company is really struggling with cash flow. Even then, my first option would be to control it from the source (approving invoices or picking what's on my AP module balance for check/payment processing..... that I know we have funds) and NOT if we should "release" an already processed check or not.

What are YOUR reasons (justification?) for the two approval system?

Anonymous
(Assistant Treasurer) |

The only justification thus far has been "That's the way we've always done it." No one is aware of why it was put in place, but this probably was used prior to establishing our Approval Authority Matrix. Now it is a duplication of process.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Anon, you have your answer. If you can't define or rationalize the purpose and need of a certain step/procedure, then it should be eliminated. A temporary step is acceptable depending on a temporary circumstance (i.e. cash flow constraints).

Bruce Lynn
Title: Managing Partner
Company: The FECG LLC
(Managing Partner, The FECG LLC) |

Approval for disbursements can be based on amount, purpose and currency. Also, I assume current levels are embedded in a policy or is this level based on how it has always been?

Amount - there is no right answer. Larger amounts usually require authorization by by more senior management. Very large amounts could require 2 individuals to authorize

Purpose - why is disbursement necessary? interest expnses under borrowing? legal ? large bar tab for a party? hedge for purchase of power, etc. If for a repetitive, know reason (e.g. payment to a vendor under a previously signed contract then authorizations could only require lower level authorization). If for a non operational purpose (e.g. interest expense then who signs like Treasurer in this example can be as important as seniority.)

Currency - disbursements in a functional currency (USD?) can require lower level authorizations, but disbursements in a non functional currency could require a higher level of authorization as this dispursement exposes company to FX risk

Suggest yuo do a study showing what % of transactions are composed of X% amounts (i.e. Is 20% of value incurred by 80% of transactions?) to determine whether tightening / loosening authorization levels will increase / decrease company to error or fraud and by how much.

Assumption is that changing (loosening?) levels will not expose company to more fraud but will free management time to make more important decisions. An authorization matrix embedded in your policy will be needed regardless of number of authorization levels

Rob Rogers
Title: Director, Membership & Certification Con..
Company: Diversified Business Communications
(Director, Membership & Certification Content, Diversified Business Communications) |

Good answers here. At The Accounts Payable Network we have 2014 survey data focused specifically on check signature requirements (auto-sign and dual signature), and as others have noted, thresholds vary. For check disbursements the median check-value threshold above which two signatures are required (the first signature is autosigned for 3/4ths of participants) is $25k for all-participants/all-industries, with a median $50k for utilities.

The more important points, as covered above, are that it depends on kind of disbursements are you making, and that review & authorization should be baked in earlier in the AP -- or better, the procure-to pay -- process. Also note that despite the median figures above, the thresholds vary by organization ("no right answer"), and more than a third of respondents had no second signature requirement, though that depends on size, industry, etc.

Anonymous
(Assistant Treasurer) |

Banks have consistently told us that second signature verification is not guaranteed by the bank, so it seems a second signature requirement at any level is more of an internal "comfort factor" than serving any real control function over payment completion. With the proper invoice/payment authorization approval matrix, even a second signature seems redundant.

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