Q: My client is a small, non-audited private company with one of the directors serving as managing director. Any payments made by the business are authorised by the managing director, but when he is not there, it causes problems in relation to getting authorisation of payments due to suppliers and has held up the payment of wages.

A: You should advise the directors that the company needs processes in place to deal with such situations. Given the circumstances, the other director may decide to take a more active role in the running of the company. The director may have to grant power to a family member or trusted employee, providing them with the authorisation to make payments.

Obviously, factors such as the need for set authorisation levels and counter signatories would have to be considered.

Approval of all the payments made should still be authorised by a director or person nominated for that purpose. Neither you, nor anyone else from your firm should take on the responsibility of authorising payments on behalf of the company.

If the company does not put proper procedures in place, the possibility exists that a creditor may take legal proceedings against the company on the non-payment of a debt due to them.

ICAS has issued guidance, ‘Avoiding the Pitfalls in Running a Private Company: A Guide for Directors’, which looks at how the principles of good governance can be applied in smaller companies.

James Barbour is director, accounting and auditing at ICAS
www.icas.org.uk