Segregation of Duties Review

Have you recently reviewed your organization’s internal controls for proper Segregation of Duties (SOD)?  One of the primary components of fraud is opportunity, and a lack of SOD can provide opportunity to an individual to misappropriate assets and go undetected.

SOD is the foundation of sustainable risk management and internal controls for a business. The general idea of SOD is to prevent one person from having access to both assets and responsibility for maintaining the accountability of those assets. The flow of transaction processing and related activities should be designed so that the work of one individual is either independent of, or serves to check on, the work of another.  For example, in cash disbursements, Staff 1 can receive a vendor invoice, review it and submit for approval by a separate manager or department head.  From there, the approved invoice is routed to Staff 2, where the check is printed and submitted to be signed by designated check signers who are separate from accounting. The check can be mailed by Staff 1, however Staff 3 records the expense to the general ledger.

If an Organization does not have adequate staff size to effectively segregate duties for all accounting functions, then compensating controls should be incorporated to provide reasonable assurance that transactions are being monitored for accuracy and propriety. At a minimum, fiscal managers having staff who can perform all aspects of key accounting functions should be doing a monthly review of their organizational unit’s financial statement detail to identify any improper or unusual transactions.

If you are unsure of how to implement proper segregation of duties, contact us at 1-866-287-9604.  A small investment now in your internal controls can save you a lot in the future.

Posted by Drew Ulmer, CPA