Developing Financial Authority Manual

Developing Financial Authority Manual for building designers.This article covers the following aspects.1. The purposes for which Payments are required to be made2. Methods of making payments –to Overseas Vendors in foreign currency3. Methods of making payments –to local vendors4. Key nine Activities to make financial authorisation manual5. Template for financial authority limits6. Responsibility matrix based on S-0-D concept7. Five types of supporting  financial documents 8. Activities that can adversely impact business Other functions can also use the concepts used in this presentation.1.    The purposes for which Payments are required to be made 1 . Design services outsourced to designers such as Architects or interior or MEP rother specialists for complete design or proof design/or design validation2. Services received from external service providers, such as sample inspection & testing, coordination work for statutory approvals, prototype development, renderings, etc., sample room /mock-up building work3. Procuring Design related equipment/hardware or software packages, BOQ samples materials / etc4. Out-of-pocket expenses incurred or reimbursements to outsourced designers or inhouse teams during their course of work5. Any similar work related to the design function, such as  statutory approvals relatedThis excludes payroll, which is assumed to be managed by the HR team, and the Purchase or contracts teams manage bulk buying of BOQ materials. 2. Methods of making payments –to Overseas Vendors in foreign currencyIrrevocable LC opening by the importer in favour of the beneficiary (exporter)Payment through Bank using SWIFTNet banking /Online banking or Internet Banking directly by the importerTT/Telegraphic transferDocumentary collection (Payment documents received through bank)Open Account (Payment documents received directly by importers)Cash in Advance in Foreign currency (FC) notesInternational Credit card /Debit cardTraveller’s cheques issued by reputed International banks2.    Methods of making payments –to local vendorsNet banking /Online banking or Internet bankingBank transfer -IMPS,NEFT (IFSC codes)UPI – Unified Payment Interface(UPI)-Bank cheques or Demand draftLC -Letter of creditChequesDebit cardsCredit cardsCash 4. Key nine Activities to make financial authorisation manualIn either case, the following nine activities are proposed to be performed.1. Issuance of Policy directions for financial authorisations by Board/promoters2. Design format/contents of the proposed financial manual3. Develop (function-wise)details for the Financial authority manual4. Periodic review of payment methods and  approval norms as also cycle time for payment release, post-approval as per responsibility matrix  at point 7 below5. identify Documents that need  board approval ( as mandatory/needing power of attorney)  6. Maintain central Serial Control of original authorization documents, usually with the CFO7. Incorporate empowerment in the authority norms as per risk appetite while considering productivity enhancement8. Ensure the controlled circulation of the approved financial authority documents9. Develop Software program /workflow in ERP or software SolutionAll activities are identical in each of the functions in any  function and industry except activity at sr no three, which is unique for each function and summarised below5. Template for making a financial authority manualOutgoing payment relatedcurrencyFinancial limitInitiationEditDeleteApproveColumn (1)(2)(3)(4)(5)(6)(7)Negotiations with consultants      Negotiations with Vendors-BOQ, software etc.¯     Negotiations with Vendors      Agreements with consultants      Purchase orders on vendors      Invoices of consultants-Design Fees & reimbursements      Invoices of Vendors -BOQ samples, testing etc.      Payment Requisition for Statutory Fees      Reimbursement claims of design team-Travel, expenses      Credits from consultants, vendors      Designer’s payroll-related documents      And so on       Note: Rows can be inserted for each line item above to meet different financial limits for different financial levels.  The hierarchical level needs to be decided and entered in the column no 4,5,6,76. Responsibility matrix based on S-0-D conceptThe above template includes a responsibility matrix, where columns 4,5,6,7 are to be populated based on the S-O-D Segregation of duty concept.7. Five types of supporting  documents  before releasing the final paymentFinancial-related Documents type -a few examplesA1) Supporting documents·      Quotations, ComparisonsA2) Financial documents·      Agreements or Purchase orderso   Design consultancy services like consultancy for Architectural, interior designing, MEP/engineering, etc.o   BOQ/Bill of quantities used in construction, usually for samples, mock-ups or show units, etc., arranged by the project design and engineering team members.o   Assets like office equipment, Design software, etc. required by the Project design and engineering team, and so on B) Outgoing Payment related  documents·      Invoices raised by outsourced consultants-Design or other Consultant fees or know-how fees·       Invoices raised by Vendors-Purchase of any BOQ, usually for samples, mock-ups, or show units or service providers·       ·      Acceptance report of Design work submitted by consultant or service provider various vis a vis stages-wise deliverables mentioned in the authorised purchase order or agreement·      Incoming BOQ/ Material acceptance report ·      Internal payment computation vouchers of the company·      Invoices  and debit note/claims of outsourced consultants or vendors or service provider C) Incoming Payment related documents·      Credit notes of consultants/vendors·      payments  instrument/from them funds transfer in detailsD) Expense claim documents (other than reimbursement below)·      Claim forms for official expenses incurred by designers/employees on behalf of the company, along with supported documents E) Reimbursement claims documents·      e.g., vouchers for out-of-pocket expenses incurred for official work such as Local conveyance ,travel expense vouchersOut of pocket expense voucher 8. Activities that can adversely impact business §  Making authority manual that is non-comprehensive or does not include many payment supporting Documents  (such as per A1 or A2  in point 7 above) associated with capturing activities/transactions such as the following  but not limited to in this function: ·       Memorandum of understanding towards such negotiations - Technical aspects·      Agreements or contracts with outsourced design consultants towards negotiating rates, payment terms, escalation basis, reimbursements, other commercial terms, taxes, etc.·      Purchase orders on vendors — technical aspects and rates of sample BOQ materials .freight, packing, and forwarding, marine insurances, payment terms, Taxes, duties, etc·      Negotiation of fees/rates, reimbursements, payment, and commercial terms with each type of design consultant or service provider·      Negotiation worksheets of reimbursements like travel, free days of visits at the site (types, limits), taxes, duties, and other statutory charges·      Rates-related worksheets for the extra scope of work or time overruns·      Incentives computation worksheets·      Statutory fees/charges worksheets·      Taxes/levies and duties related rates worksheets·      Refund documents, if any, from statutory bodies or business associatesAnd so on §  Making authority manual that is non-comprehensive or inaccurate vis a vis outflow-related documents (as per B in point 7 above  ) such as the following (but not limited to) in this function. §  Each type of consultant/service provider§  Model developers for sales promotion§  Renderings§  Vendors of BOQ-samples§  Statutory fees/charges§  Taxes/levies and duty rates§  Penalties, fines (if any), computation§  Bank Guarantee, Bonds, etc., if any values and terms §  Making authority manual that is non-comprehensive or inaccurate vis-à-vis incoming payment-related documents  (as per C in point 7 above)in this function, e.g., credit notes, supporting.§  Making authority manual that is non-comprehensive or inaccurate vis a vis official expenses (as per D in point 7 above)in this function, e.g., travel, boarding, lodging, cash purchased samples, etc. §  Making authority manual that is non-comprehensive or inaccurate vis a vis reimbursement claims as per E in point 7 above)in this function, e.g., pocket expenses incurred for official work. Other aspects common to all documents in  manual§  Approving financial authority norms skewed to enable specifically nominated persons in design function to carry out financial transactions with ulterior motives/obtain and thus making of power centers.§  Using superseded /obsolete financial authority manual due to its uncontrolled circulation.§  Making circular changes in the financial authority manual to transact specific transactions and restoring original values, with ulterior motives, and simultaneously disabling audit trail to prevent detection. §  The financial authority manual for design functions does not have provisions for managing emergency-like situations that may need subsequent approvals. §  Making financial authority norms vague leads to dissatisfaction amongst functional teams and misinterpretation.§  In the workflow/embedded software (that enables accessing financial limits), incorporating incorrect financial limits by not exercising prudence leads to bypassing approved financial norms.   §  Using financial authority manual by users who have not yet been appropriately authorized by CEO/MD/board as relevant (such as below but not limited :§   The power of attorneys, which serve as authority documents for statutory bodies/external world, is not supported by the availability of board resolution in a validly convened board meeting § Power of attorney not being on a stamp paper of requisite value§ Power of attorney not carrying the proper company seal, which is valid. Handbook of the author A template illustrating the activities to be performed for developing the Financial authority manual is included in chapter 16 (annex 38C) in the author's handbook and titled” ETHICS in the real estate and hospitality industry, Volume 1- Architectural, Interior Design, and MEP services.