Developing Financial Authority Manual for building design functions

This article covers the following aspects.·      The purpose for which Payments are required to be made  ·      Payments currency options·      Methods of making payments -Local currency·      Methods of making payments -Foreign currency·      Key nine Activities to make manual·      Five types of key financial-related documents·      Responsibility matrix based on S-0-D concept·      Activities that can adversely impact businessIn a design function, financial payments are required to be made usually for the following purposes.The purpose 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 team during their course of work5. Any similar work related to the design function, such as  statutory approvals relatedThis excludes wages & salaries etc, which are assumed to be managed by the HR team, and bulk buying of BOQ materials is managed by the Purchase or contracts teams and hence not included in this article.Payments currencyThese payments may be made to the following:·      1 In local currency to locally based designers/consultants, service providers, vendors, etc.·      2 In foreign currency to overseas-based designers/consultants or service providers or vendors etc. Against import of consulting services or sample materials etc.·      The currency could be any like US Dollar or Euro,  Pound sterling or Ruble or Yen or Chinese Yuan and so onMethods of making payments as per negotiation -Local currency (Against approved invoices/bills)These are summarised below (The finance team can be requisitioned to affect payments as applicable) ModeRemarksNet bankingIt is a service provided by banks that allows customers to access their bank accounts and make payments online. Customers need to log into the bank's website and provide their bank details to use this service. Authentication of the customer is done using OTP and email ID validation by the customer.ChequesFor large payments Bank cheques or Demand draftFor large payments as an alternate to cheques , being secured Bank transferIn any form, e.g., IMPS,NEFT, SWIFT,  based on account number of both payers and payee along with IFSC codes of banks of payer and payee UPI - Unified Payment Interface(UPI)-UPI is a real-time payment system that allows customers to transfer money from one bank account to another using a mobile App. It requires customers to enter the UPI -ID to authorise transactions Debit cardsDebit cards are issued by banks (such as Visa or Mastercard etc )for drawing money out of ATM against a PIN or for making payments to merchants at point of sale. Debit cards need PIN for authenticationThese can be corporate debit cards or Individual debit cardsCredit cardsCredit cards  issued by banks (such Visa or Mastercard etc) that allow customers to make payments on credit .These also need  PIN or signatures for authorisation of transactions .These can be corporate credit cards or Individual credit  cards Prepaid cardsThese are similar to debit cards but these are loaded with a fixed amount of money and used  for making purchases at point of sale or online CashThese are for small transactions, as per statutory limits in the country,etc. And so  on   Imports -Methods of making payments method-as per negotiation) -Foreign currency Against approved invoices/bills.ModeRemarks  TTThe importer of design services or samples transfers the payment amount to the overseas-based designer/service provider (exporter's ) bank account using a telegraphic transfer.The exporter receives the payment in their local currency (foreign currency for us),Open AccountUnder this method, the importer of design services or BOQ samples pays  the exporter after receiving the design consultancy deliverables or sample goods or services.The overseas-based designer/service provider (exporter) invoices directly to the importer of design services or BOQ samples , who makes the payment at a later date.Open account is a convenient method for importer of design services or BOQ samples, but it is a risky method for exporters as they have no guarantee of paymentSuch method is usually followed when there is regular on going services being rendered and both overseas consultant/designer and importer have mutual good ongoing relationships Documentary collectionUnder this method, The overseas-based designer/service provider (exporter) presents his invoice or Bill of exchange or shipping documents for BOQ samples to the importer of design services/BOQ samples through his(exporter bank) to the importer bank.The importer of design services/BOQ samples receives theseinvoices or Bill of exchange or shipping documents for BOQ samples from his(importer banks) and accepts these as per terms of agreements/purchase order/service order placed by importer on overseas consultant /service provider and returns stamped/accepted copy to his banker .Thereafter, based on such accepted documents, the importer’s bank remits the payment to the exporter’s bank in foreign currency overseas designer/service provider collects payment from his (overseas) banker.Thus overseas designer/consultant  (exporter) receives payment only after the importer of design services has accepted the invoice or Bill of exchange or shipping documents for BOQ samples.It is a more secure method for the overseas designer/consultant (exporter ) compared to the open account method described above.This method is usually followed by one-time services renderedUnder this method, the exporter's bank collects the payment from the importer's bank by presenting shipping documents or other relevant documents. The exporter receives the payment only after the importer has accepted the bill of exchange or made the payment. Documentary collection is a less secure method than L/C, but it is less costlyCash in AdvanceUnder this method, the importer makes payment to the overseas consultant/service provider in cash, either in full or in part.It is safe for the exporter but risky for the importerLC opening by the importer in favour of beneficiary (exporter)Usually this method is followed for high-value materials being exported by the overseas vendor to importer.The Importer requests his bank to establish an L/C in favour of the exporter against the agreed rate/payment and other terms as per the mutually signed agreement/purchase order.L/C opening request documents are initially sent by the importer to the overseas vendor for acceptance of rates/payment terms, other conditions before forwarding the same to his(importer) bankerThe exporter, after shipping the Material, forwards the original document listed in LC (eg, shipping document,invoice, packing list etc) to his overseas bank for subsequent forwarding such documents to Importer’s bank.The importer’s bank presents these LC documents to the importer for acceptance and thereafter initiates remittance to an overseas bank of the exporter.The exporter receives the payment after the above process·      LC is the most secure method of receiving payments by the exporter·       And so on  Note -payment methods -foreign currency :Based on the foreign exchange management Act 1999 (In India) and  Reserve bank guidelines, each type of payment (excluding cash) is to be done through banking channels called authorised dealers who use SWIFT account numbers for remitting money against form A2(services)/A1(BOQ materials)Even for cash payments, regulatory norms need to be complied with as perThe author has identified two types of financial authority manuals /documents as below.·Conventional type manual used in a non-ERP environment· Digital embedded  document/manual or inbuilt into ERP/business softwareIr respective of manual or digital authorisation approach followed by the organisation, nine key activities need to be pursued for making such manuals.Key Nine Activities to make manualIn either case, the following nine activities are proposed to be performed  for developing a financial authority manual1 Policy directions for financial authorisations2 Design format/contents of the proposed financial manual3 Develop a Financial authority manual4 Periodic review and approvals5 Documents needing board approval ( mandatory /needing power of attorney)  6 Controlled original documents7. Incorporate empowerment norms8. Controlled circulation of the approved financial authority document9. Software program manual, including workflows in ERP SolutionDetails of these activities are available in my book. However, core financial documents as per activity no 3 are summarised below.All activities are identical in each of the functions in any  function and industry except activity at sr no 3, which is unique for each function and summarised below.Five types of key financial-related documents are included in this sectionFinancial related Documents typeExamplesA1)Supporting documentsA 2) Financial documents  Quotations, ComparisonsAgreements or Purchase ordersB) Outgoing Payment related    documents· Acceptance report of Design work submitted by consultant or service provider various vis 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 employees E) Reimbursement claims documents· Local conveyance , travel expense vouchers· Out of pocket expense voucher A summary of these financial documents is given belowA 1) Key financial activities or transactions related to supporting documents  such as quotations, working sheets, etc,These include any negotiations of rates/fees, payment terms, and commercial terms amongst entities such as business associates like vendors, outsourced designers, service providers, etc., as relevant to each function.·        Rates/Fees would include taxes, duties, and other statutory levies as applicable.·        Negotiations could be for any of the following.·      Design consultancy services like consultancy for Architectural, interior designing, MEP/engineering, etc.·      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.·      Assets like office equipment, Design software, etc. required by the Project design and engineering team and so onA 2) Other Functional Documents  such as agreements, Purchase orders etc associated with capturing the above transactions):· Purchase orders-BOQ materials usually for samples, mock-ups, or show unit· Design consultancy fees related- Civil, Interior design, MEP, IT/Communication infrastructure,·  Agreements  with outsourced design and testing consultants - usually for samples, mock-ups or show unit Service orders·  Other consultancy Agreements, including commercial and having financial rates or fees, statutory taxes, and payment terms Payment vouchers related to bills of vendors, consultants, and service providers B) Outgoing Payment related documents such as payment requisitions or vouchers vis-à-vis (Any payment mode):·  Invoices raised by outsourced consultants-Design or other Consultant fees or know-how fees·  Invoices raised by Vendors-Purchase of any types of BOQ, usually for samples, mock-ups, or show units or service providers·  Document towards Statutory fees/charges·  Document related to Taxes/levies and duties·  Document towards Penalties, fines if anyC) Incoming Payment related documents -Any payment receipt related :·   E.g, Credit notes for incoming payments if the any-computation basis D) Expense claim documents (other than reimbursement below), such as claim forms for official expenses incurred by designers/employees on behalf of the company, along with supported documentsE) Reimbursement claims documents, e.g., vouchers for out-of-pocket expenses incurred for official work, along with supported documentsResponsibility matrix -based on the S-O-D conceptFor each of these five types of documents, the financial authority manual must cover who can do the following to ensure S-0-D segregation of dutiesfinancial related  document as aboveInitiate or createEdit or modifyDeleteviewApproveFinanciallimit for approval Col 1234567A1 or [email protected] See [email protected]@@@#[email protected]@@@@#[email protected]@@@@#[email protected]@@@@#[email protected]@@@@# Notes  for developing responsibility matrix :i)@ Indicates: who will perform this activity (vis a vis documents A, B, C, D, E) capturing function, level, position, and team member’s code (in case of many employees holding similar positions) as per the management discretion.  ii)# indicates financial limits/values in column 7 to be decided by the management in the appropriate currency vis a vis hierarchical levels/positions in column 6 and to be incorporated.  Therefore for each type of document (A or B  or C or D, or E) there can be 2-3 rows each as per empowerment normsiii)In case of an employee’s transfer, promotion, or leaving organisation, simply the employee code would get replaced.iv)Further, the contents/design/format of each of the five types of documents can be at per absolute discretion of the organisation and or driven by ERP/ software solution inbuilt into such solutions and hence not part of this articlev) Appropriate workflow must be configured in the ERP /software solution based on the above time norms to complete these activities can be captured in the SOP documentvii)Separate sheets can be used for local currency and foreign currency to avoid confusion  vii)  At the discretion of the CEO/MD of the construction organization, the responsibility for  the negotiation of rates and commercial terms  can be assigned to:·   Either to a cross-functional team of 1 or more HODs of Design of Architectural, Interior design and Design of MEP functions + CFO   or HOD along with nominated functional designers or specific level designers as per empowerment norms· Or Purchase or contracts teams with at least two professionals as per empowerment normsActivities that can adversely impact business Documents related§  Making authority manual that is non-comprehensive or does not include many payment supporting Documents  (as per A1 or A2  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 §  The financial authority manual needs to be more comprehensive and accurate for different types of services/materials vis a vis outflow-related documents (as per B 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 §  Financial authority manual, which is non-comprehensive or not accurate vis-à-vis incoming payment-related documents  (as per C above)in this function, e.g., credit notes, supporting§  Financial authority manual, which is non-comprehensive or inaccurate vis-à-vis official expenses (as per D above)in this function, e.g., travel, boarding, lodging, cash purchased samples, etc. §  Financial authority manual, which is non-comprehensive or inaccurate vis-à-vis reimbursement claims as per E 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 list of 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.