Separation of Duties
Separation, also know as segregation, of duties is an accounting concept of having more than one person required to complete a task. It is an important step to improve the internal control of a business’s assets. For example, the internal control of cash is improved if the person handling the money duties is different from the person performing the record keeping duties. When these duties are separated, the likelihood of theft is reduced because it will now require two people working together to plan and carry out the theft.
In general, no one person should:
- Initiate a transaction
- Approve a transaction
- Record a transaction
- Reconcile balances
- Handle assets
- Review Reports
The approval function, the accounting/reconciling function, and the asset custody function should be separated among employees. If these functions cannot be separated, a detailed supervisory review of the related activities should be performed.
Specific examples of separation of duties are as follows:
- The person who requisitions the purchase of goods or services should not be the person who approves the purchase.
- The person who approves the purchase of goods or services should not be the person who reconciles the monthly financial reports.
- The person who approves the purchase of goods or services should not be able to obtain custody of checks.
- The person who maintains and reconciles the accounting records should not be able to obtain custody of checks.
- The person who opens the mail and prepares a listing of checks received should not be the person who makes the deposit.
- The person who opens the mail and prepares a listing of checks received should not be the person who maintains the accounts receivable accounting records.
In a business that has good separation of duties, it is expected that at least on individual involved in the process will identify and/or prevent a transaction processing error, misappropriation, or fraud from occurring.
- Separation of Duties
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