What it means
The typical sequence is that an employee raises a purchase requisition describing what is needed, why, and the estimated cost. Once approved by the relevant budget holder, the procurement team converts it into a purchase order, which is the document that legally commits the organisation to a supplier.
The control value is that approval happens before commitment rather than after. Without requisitions, the first time finance hears about a purchase is often when an invoice arrives, at which point refusing to pay is difficult and the budget has already been consumed.
Approval limits are usually tiered by value, so a team leader might approve up to a few thousand dollars, a director considerably more, and anything above a set threshold goes to a committee or the board. Splitting a large purchase into several smaller requisitions to stay under a limit is a recognised control failure that auditors look for.
Requisitions also feed budget management and commitment accounting. Approved but unspent requisitions represent money that is spoken for, and tracking them stops two managers from confidently spending the same remaining budget.
The most common complaint is that requisitions slow everything down, and that is a genuine trade-off. Sensible organisations set the thresholds high enough that low-value routine spending flows quickly, use catalogue-based ordering for repeat items, and reserve close scrutiny for purchases that are large or unusual.
In practice
Real-world examples.
Example
A laboratory technician raises a requisition for $6,800 of reagents. The department head approves it within her $10,000 limit, procurement issues the purchase order, and the commitment appears against the departmental budget the same day.
Example
A facilities manager raises three separate requisitions of $9,500 each for the same refurbishment in one week. Internal audit flags the pattern as a possible attempt to stay below the $10,000 approval threshold and the spend is escalated for review.
Example
A retail chain uses catalogue requisitions for consumables, where pre-approved items under $500 route straight to the supplier at prices already negotiated. Staff get supplies quickly while unusual or high-value requests still go through full approval, and the finance team keeps a monthly report of catalogue spend by store.
Formula
Calculation
Requisition value = Sum of (quantity x unit price) for each line, plus applicable tax, compared against the approver's authority limit
An IT manager raises a requisition for a new team. It covers 12 laptops at $1,450 each, which is 12 x $1,450 = $17,400, 12 docking stations at $180 each, which is 12 x $180 = $2,160, and three years of support at $240 per machine, which is 12 x $240 = $2,880. The subtotal is $17,400 + $2,160 + $2,880 = $22,440. Sales tax at 8% is $22,440 x 0.08 = $1,795.20, giving a total of $22,440 + $1,795.20 = $24,235.20. Under a policy where a manager may approve up to $10,000 and a director up to $25,000, this requisition needs director sign-off but not board approval, and it commits $24,235.20 of the department's remaining budget the moment it is approved.Case study
Seen in the real world.
Larkspur Health Services is a fictional, illustrative community clinic group that had no formal requisition process. Managers ordered directly from suppliers and finance discovered the spending when invoices arrived, which meant budget overruns were found weeks after the money was committed.
In one quarter the group overspent its consumables budget by $180,000, with no single decision to blame; it was the accumulation of dozens of small unapproved orders. The finance director introduced a simple requisition system with a $1,000 automatic approval limit, a $15,000 manager limit and director approval above that.
Within two quarters this illustrative group had cut unbudgeted spending by roughly 70% and, more usefully, gained visibility of committed spend before invoices arrived. Clinic managers initially resisted the extra step, but the automatic approval limit meant most day-to-day ordering was unaffected. The finance director's summary of the fictional exercise was that the system did not stop anyone buying what they needed; it simply moved the conversation about affordability to before the order rather than after it.
Watch out
Common mistakes.
- Confusing a requisition with a purchase order, when only the purchase order commits the organisation to an external supplier.
- Splitting a purchase into smaller requisitions to stay under an approval limit, which is a control breach auditors specifically test for.
- Setting approval thresholds so low that routine ordering stalls, which pushes staff towards buying off-process on personal cards.
Questions
People also ask.
Who should approve a requisition?
The budget holder responsible for the cost centre being charged, within the authority limits set out in the organisation's delegation policy.
Does an approved requisition affect the accounts?
It does not create an expense or a liability, but it should be recorded as a commitment so remaining budget is shown accurately.
What happens if goods are received without a requisition?
Finance usually raises a retrospective approval, which is a poor substitute because the money is already spent and the control has failed.
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