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Signature Authorization Policy

Learn the necessary policies and procedures to stay compliant.

By Robert Putrus, PE, CMC, CFE
When committing company resources, it’s required that all company personnel adhere to the published signature authorization policy. Often, company finance staff, headed by the CFO or controller, assume, either knowingly or unknowingly, the ownership of the evidence and the responsibility to comply with the company policy’s internal control.

Effectiveness of Internal Controls
A signature authorization policy is part of the corporate governance and internal controls of companies. For publicly traded companies, the essence of SOX Sec. 404 is to evaluate and report on the effectiveness of internal controls over corporate financials. SOX establishes an internal control standard that is broader than generally accepted accounting principles.

In addition, the SEC has stated: “We believe that the purpose of internal controls and procedures for financial reporting is to ensure that companies have processes designed to provide reasonable assurance that:

  • Company transactions are properly authorized;
  • Company assets are safeguarded against authorized or improper use; and
  • Company transactions are properly recorded and reported to permit the preparation of the registrant’s financial statements in conformity with generally accepted accounting principles.”

Building Blocks
To design and document policies for committing the company to legal obligations, financial commitments or other transactions, companies should consider the following:

  1. Identify, review and standardize the company’s types of requisitions.
  2. Document companywide authorization for the most common types of commitments.
  3. Classify check signers into groups with approval and authority level.
  4. Identify the required documents evidencing compliance with the company’s signature authorization policy.
  5. In case of process improvement, identify the differences between the “as is” and “to be” signature authorization policy and procedure.
  6. Document and recommend the transaction type approvals for the company’s board.
  7. Document the required authorization prior to placing an order.
  8. Seek management approval for signature authorization policy recommendations.
  9. Annually review the signature authorization requirements.
  10. Amend the signature authorization policy to reflect any changes in the company’s management practices.

Authorization Matrix
It is a best practice that a company’s signature authorization matrix contains a list of the most common types of commitments and expenditures against the appropriate signature level required. An alternate signer also may be designated if the authorized signer is absent from the office.

A signature authorization matrix is a map of the company sub-processes, which lists all used requisitions of different purpose against the authorized staff that perform the review and approval of such requisitions. Examples include sales order, product development, purchasing fixed asset, unbudgeted expenditure, product manufacturing, payment and check signatures, and credit memos.

Signature Designation and Authority
The review and approval of the various company requisition forms calls for the signatures or initials of specific personnel evidencing policy compliance.

At least two signatures are recommended to establish proper internal control. Different designations should be granted to the approver, authorizer and reviewer.
Approved check signers are classified into two groups, A and B, which are approved by the company chair. Each group has a different dollar amount of approval. The dollar amount will determine if two A signatures or A and B is required on the issued check.

In addition, companies should document and publish the signature authorization to the transactions that require board of directors’ approval. Some of these are:

  1. Direct affairs of the company for the benefit of shareholders.
  2. Review and approve the company long-range strategy development.
  3. Meet regularly to monitor compliance.
  4. Ensure an ethical business environment.
  5. Review and approve the annual financial statements.

The Outcome
Establishing a consistent signature authorization policy for the review, approval and authorization of transaction is necessary to commit company funds, obligations, contracts and assets. In addition, it will fulfill a necessary component of the company internal control and corporate governance.
Robert Putrus, PE, CMC, CFE is a principal and founder of The Roberts Company, LLC in Southern California.