Can you share best practices from Fortune 100 companies around band level approvals for POs?


Q. (cont.)

• What are the thresholds at different levels, by commodity?
• What happens when a PO is changed from a certain value to a higher value? Will it have to go through the entire approval workflow again?
• Which POs and values should warrant approvals from VPs, etc.?
• In addition—what about check approvals? What should be the limits?

A.  If we understand your question, it concerns dollar thresholds for PO approvals. While we do not have recent data on PO value approvals, here is an example of thresholds from one (large) organization:

- Supervisor: $1,000, no T&E approval
- Manager: $5,000, T&E $2,500
- Marketing manager: $5,000, T&E $2,500  
- Controller: $25,000, T&E $10,000
- VP: $50,000
- Two VPs required: Over $50,000

There may be thresholds by commodity—for example, $50,000 for marketing, which may have more dollars in their line of work. So regular expenses and T&E are the same as other managers, but in marketing they have a higher dollar cap. This principle may be applied similarly in certain kinds of manufacturing, where raw materials may have a very high dollar value.

Any time a purchase order is changed in dollar amount or supplier, the PO should be re-approved. (You want to avoid people setting up POs at a lower dollar amount and then changing them after approval; the intention could be fraudulent.)

The above figures are just one example, and the PO value that requires VP approval depends on the size of company, and the risk tolerance of executive management and owners/shareholders.

Regarding check approvals, if all approvals are done prior to check set up (best practice), and if any PO changes are made to go back through re-approval (also best practice), then no further approval is needed when the check is cut. These checks could have a computer signature.  However, as a double-check, many companies have a two-signature approval requirement for checks over a certain dollar amount, depending on the size of the company.

TAPN does have benchmark data related to check signature practices, specifically the threshold at which two signatures are required. Here are the results for all participants:

Threshold amount at/above which two signatures are required on the check (all participants):
Mean $271,956
Median $25,000
10th percentile $5,000
25th percentile $10,000
75th percentile $100,000
90th percentile $500,000

As you can see, the 25th percentile threshold is $10,000. That indicates that a quarter of all participants had a threshold at or below $10,000 for requiring a second signature on a check. But those figures include companies of all sizes. Isolating organizations with annual revenues of $5 billion to $20 billion in revenue, the data looks like this:

Mean $203,813
Median $50,000
25th percentile $10,001
75th percentile $150,000
90th percentile $750,000

So in larger organizations, the median threshold for a second signature is $50,000, and the average mean is $200,000.

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