What is Delegation of Authority?

Delegation of authority is an important part of the not-for-profit governance process.

Corporate laws state that board directors are responsible for making sound decisions and providing acting in the best interest of their organisations. However, it isn’t always practical to do be involved in every aspect of an an organisation. As an organisation grows, its board members are likely to become busier and need to be strategic about how they spend their time.

Delegating work can be effective for spreading the workload and passing on legal authority to others while still meeting legal obligations. Delegation of authority shares formal authority to specific individuals and assists the board in running the organisation smoothly without taking too many risks or causing delays.

What is Delegation of Authority?

Delegation is the allocation of powers to an individual who has the skills and experience to carry out the functions and duties of and act on behalf of a board of directors. To work properly, delegation of authority must be founded on three principles:

1. authorisations must be lawful, accurate and transparent,
2. delegates must only make decision they are authorised to,
3. and decisions and delegation of authority should be recorded.

Delegation of authority allows the board to regulate authority and accountability, allowing managers to make decisions related to finance, employees, and regulations.

The delegation of power focuses on the role or position rather than the person. Typically, individuals in positions such as CEO or Executive Director, and people assigned to board sub-committees can become delegates.

Exercising Delegation

A person who is authorised to perform duties and functions on behalf of a board member is a delegate. Delegates must ensure their name is recorded and must act in the best interest of the organisation, in accordance with legislation, regulations, and internal policies.

The goal of exercising delegation is to empower individuals in senior management roles to use their discretion and judgement when making decisions. While a delegate may seek advice from others they should not be influenced when making decisions.

Delegation of Authority Policy

Delegation of authority must be written down.

The goal of the delegations policy is to establish a framework for how to delegate authority in a way that facilitates efficiency and effectiveness without removing accountability. The objective of the framework should therefore be to ensure that the right individuals are provided with the appropriate levels of authority they need to accomplish their duties and responsibilities.

A delegation of authority policy can assist organisational leaders in making informed decisions on behalf of others. It can also help the organisation establish strong internal controls and do its due diligence.

A good delegation of authority policy should describe the positions to whom board members can delegate their functions, what duties they may and may not delegate, and how to proceed when assigning authority to a delegate.

Key Principles of Delegation of Authority

While the delegation of authority framework is different for every organisation, there are common principles that apply to the non-profit sector. Authorised individuals should take on only the level of responsibility that supports the administration and decision making they need. A delegate should not perform duties or functions that place them in a conflict of interest and should not be encouraged to act beyond the scope of the powers delegated to them.

While delegates can exercise delegations according to the organisational policy, some may have limits place on their powers. For example, a person assigned to a CEO role on an interim basis may only be authorised for a limited time, and senior executives should not have the authority to approve their own expenditures.

Advantages of Delegation of Authority

The advantage of using delegation of authority is that it can save time and give board directors more freedom to focus on other high-level tasks. It can improve efficiency and reduce bureaucracy, making the decision process quicker across the organisation. Delegations can support risk management and oversight by assigning decision making to experts or people with experience, avoiding some of the risks that come with making bad decisions due to lacking experience in a specific area of expertise.

It can encourage discussions about the challenges CEOs face in their jobs, and which responsibilities and authority levels can help them be more productive. Delegation of authority creates an open space for discussion and should not be use as a form of control but rather to facilitate the work of the organisation. The goal is to have a clear understanding of who can do what, this can change as the organisation changes.

Disadvantage of Delegating Authority

The disadvantage of delegating authority to another person is that board directors may believe they are no longer liable for providing oversight. Directors are still fully responsible for the decisions made my delegates. If the delegate is neglectful or makes a wrong decision, the board is ultimately liable for their actions.

“Directors are entitled to delegate to others […] What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries.” (paragraph 20, ASIC v Healey & Ors [2011] FCA 717)

Setting some limits can provide a structure that helps board members manage the risks. Yet, the controls and limits placed on delegates may vary from one organisation to another and can increase a manager’s workload. The wrong delegation of authority framework can lead to breaches, financial damage, a lack of internal controls, bribery, fraud and corruption.

Documenting Delegations

Directors have the right to delegate their powers unless the company’s constitution says otherwise. However, the delegations must be recorded in a minute book and added to a running list of formal delegations, the DOA register. A delegations register is a record of the powers and functions that have been delegated by the board to the CEO. Its purpose is to maintain and provide up to date information about delegates such as staff members and committees who have been delegated with certain authorities.

A few examples of the powers and functions that could be added to a delegation of authority register include acquiring and disposing of assets, signing agreements such as leases and land use contracts, hiring and firing staff, and replacing equipment and vehicles. While some responsibilities are delegated to the CEO, the board continues to be responsible for monitoring, asking questions and holding staff accountable. Delegation of authority should not weaken its ability to provide oversight.

Frequently Asked Questions

Related Terms

Accountability

Minute Book

Additional Resources

Sample Delegation of Authority Policy 1

Sample Delegation of Authority Policy 2

Financial Delegations Better Practice Guideline

Delegation of authority for not-for-profits in Australia (Video)

Legal Obligations of NFP Directors