Financial Management

January – February 2020

Financial Delegation and Spending Limits

Most of the organisations that we are working with, that have a paid manager or coordinator, allow that person to make purchases and some financial decisions without having to check with the board or committee first. This is called a FDA, or Financial Delegation Authority.

When we enquire about such authorities during audit, we find more often than not that key people in the organisation either do not know, or do not monitor, the limits within such FDAs. They are almost never written down, and can range from $100 to $5,000 for even quite small groups. Sometimes such arrangements are informal, i.e. the manager is asked to consult with the board when she thinks it’s necessary.

By default, only the officers of an organisation, i.e. the named or elected committee or board, can make decisions about expenditure. The can delegate this authority, but they cannot delegate any legal responsibilities attached to it.

The responsibilities of boards and committees are referred to as ‘fiduciary duties’. The most notable one is the responsibility to keep the organisation financially solvent. Technically, office holders can be prosecuted for not taking reasonable care when voting for decisions that end up causing insolvency. That care is very difficult to exercise if the board does not retain any practical level of control over expenditure at all.

It is also often not clear what spending ceilings relate to: individual expenditure, or a monthly amount. Sometimes we are told a manager has freedom to spend ‘within the budget’, but then no budget variance reports are produced for committee meetings, or, if they are produced, no questions are being asked when variances occur.

If FDA is a bit up in the air in your organisation, how about making this an agenda item for the next meeting and clarify:

  • What amounts, or expenditure types, exactly are you delegating to the manager, and which ones you definitely want to retain.
  • How compliance with the limits are monitored.