Signatory authority can be a complicated issue. Although organizations should have procedures to track spending and help prevent fraud and abuse, the vast majority of employees handle firm resources with integrity. So when these employees have to get approval for spending from multiple higher-ups, it can be a drain on their time and can make them feel undermined and not trusted.
A Culture of Empowerment
According to the Society for Human Resource Management, 46 percent of employees say that autonomy in decision-making is very important to them. After all, employees want to contribute to their organization's success and want to help execute the strategy. Limiting signatory authority is often seen as a way to protect the organization, but the converse is also true — expanding signatory authority is a way to show respect for the jobs people do, which can make them more enthusiastic about their work. When employees feel empowered, they're more engaged, which can lead to higher profitability. Gallup reports that businesses scoring in the top quarter of employee engagement had 10 percent more customer loyalty and 21 percent more profitability.
The Disempowerment of Fraud
Empowerment comes with improved performance, which should alleviate fears that it will increase the possibility of fraud. Still, that's a very real concern. The good news is that signatory authority is one of many business processes that reduce fraud. The Association of Certified Fraud Examiners (ACFE) notes that it is often more cost-effective to re-engineer business processes than add a layer of additional controls. A credit card program that allows for faster transaction reporting may be a way to monitor transactions without subjecting them to pre-approval.
In fact, ACFE notes that soft controls that promote good behavior in the office are more effective in the long run against fraud than hard controls, in part because the worst frauds tend to involve senior management. Organizational budgets aren't undone by employees ordering too many office supplies or because a traveling employee spent $30 on a lunch when they were only approved to spend $25.
You Can Have the Best of Both Worlds
Finance leaders looking to increase empowerment in an organization have many resources to draw from. But what about financial concerns? The two can work together. Activities that increase empowerment also reduce fraud. Increased transparency can help employees make decisions faster and make it harder to hide malfeasance. Encouraging employees to express ideas can generate new sources of revenue, and it can lead to people calling out unethical practices within the organization.
A hard-dollar cutoff for certain expenditures can seem like a good method of fraud control, but it may interfere with employee empowerment in ways that are ultimately harmful. A financial oversight program that looks for problem transactions could be more effective than requiring yet more signatures.
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