Difference Between Approved & Authorized
The importance of choosing and using words carefully is often one of the first lessons a new small-business owner learns. The right words used in the right context are vital to avoid even a remote chance of misinterpretation. Although important in any communication or situation, it becomes even more crucial in business communications, policies and standard operating procedures pertaining to internal business controls. Here, the difference between terms such as “approved” and “authorized” often is significant and because of this, can have major consequences.
At first glance, it might be difficult to see any measurable degree of difference between these two terms. Both refer to an aspect of responsibility and both are important elements of control. Despite this, however, the terms “approved” and “authorized” are neither the same nor interchangeable. The most significant difference is that “approved” refers to the outcome of an internal control process. “Authorized” represents a higher level of responsibility and as a result, both drives and determines the outcome of an approval process.
In most small businesses, employees can’t start work early or stay late, take a vacation day, buy items using a purchase order or pay an invoice until and unless the request or action goes through an approval process. Approvals are a vital part of an internal control called segregation of duties. This control works to make sure no single employee ever is in a position to both commit and hide unethical or illegal actions. For example, without a well-defined internal approval process an employee could enter incorrect times on a time sheet to qualify for overtime or buy personal items using a business purchase order.
When an employee request goes through the approval process, only certain people have the power to approve or deny the request. Authorization is an internal control that works with signature or authorization code requirements to set up and support accountability in business decisions. As the business owner, you are most often the final authority and typically grant authority to department supervisors and managers in varying degrees. For example, while an accounting supervisor often has full authority to approve employee time cards and requests while the accounting manager is often the only person with the authority to approve invoice payments -- and then only payments under a certain dollar value.
Use these terms specifically, correctly and in the right context any time you write an internal control policy directive. For example, document approval process flows and include an authorization chart -- complete with upper limits of authority -- in your written business policy. Identify authorization levels by position rather than a specific employee name to allow for movements into and out of authoritative positions. This not only strengthens internal controls but also assists employee in knowing whom they can turn to for answers to control-related questions.