Module 3 · Chapter 7

Committees and Controls: The Split Purchase Orders

A board cannot check every purchase itself. It sets limits, and a small committee of directors checks that people keep to them. This chapter follows one purchase split to dodge a limit.

≈ 10 min read 8-question test

In this chapter

  • What an internal control is, and how the charter builds one
  • Why splitting a purchase is a breach, and the safe route instead
  • What board committees do, and how one found the split

7.1Internal controls in one paragraph

A board of five cannot read every order its staff place. So it writes rules and has someone check that people keep them. An internal control is that pair: a rule about what must happen before the company is committed, and a check afterwards that it did. At Brackenholme the rule is Schedule B, which says who may approve what alone.

The check is the Audit & Risk Committee, which reviews spending against those limits every quarter (§9.2). Limits and checks are how directors take reasonable care of a business they cannot watch every day (section 174).

Key point

A limit is only as good as its check. Every approval is written down first, and one that cannot be found counts as not given (Schedule B, paragraph 4).

Also in this chapter

  1. Why splitting a purchase is a breach
  2. The safe route: refer it up
  3. What a board committee is
  4. What the Audit & Risk Committee checks
  5. How the committee found the split
  6. A response that fits the breach
  7. Your job

Preview

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