Segregation of Duties SoD in Finance and Accounting

Record keeping requirements exist throughout the cash collections process. A record of cash collected must be maintained by the employee responsible for accepting the cash. This could be in the form of a cash register tape, a revenue log, a pre-numbered receipts book, etc.

It is the departments’ responsibility to ensure that appropriate controls are in place and there is separation of duties to reduce the risk of improper activities. Companies that have just one person doing everything are at a higher risk for fraud and human error. Segregation of duties and solid internal controls can minimize your risks all around. Remember, having a cohesive accounting department or team can protect your company’s finances, provide accurate information and contribute to the overall efficiency of the business. If internal control is to be effective, there needs to be an adequate division of responsibilities among those who perform accounting procedures or control activities and those who handle assets.

What is the risk associated with lack of segregation of duties?

Increased protection from fraud and errors must be balanced with the increased cost/effort required. Separation of duties are essential controls that help prevent and detect the existence of fraud and error. Even in a small business setup, separating authorization, recording, and custody functions are vital to ensure the integrity of business transactions. How can your organization protect itself from the danger of too much responsibility falling to one person and the increased organizational risk this can bring? This article will discuss segregation of duties–an internal control that’s critical in helping today’s organizations minimize risk across the enterprise. The separation of duties is one of various internal control techniques for safeguarding a company’s assets.

  • One such scenario would be allowing one person or group within your organization complete control over a business process or multiple steps within that process.
  • The operations manager suggested that the annual inventory be coordinated with the transition to the new accounting software.
  • This reduces the risk that an employee will divert an incoming payment from a customer and cover the theft with a matching credit to that customer’s account.
  • Use documented policies and procedures to clearly delineate the control activities performed throughout the unit’s various business processes.
  • SoD also ensures financial integrity by improving the accuracy and reliability of financial data.

This Segregation serves to prevent mistakes and intentional misrepresentations, as it would require collusion between multiple parties to manipulate the data. Furthermore, it enhances the integrity of the financial reports, reinforcing stakeholder trust and confidence in the company’s financial health and performance. For these principles to be effectively put into practice, organizations should have clearly defined job descriptions, workflows, and approval hierarchies. Regular internal audits should also be performed to identify any potential lapses in the enforcement of SoD. Ensuring that duties are separated appropriately within your unit is particularly important when resources are limited.


When a higher level of efficiency is desired, the usual trade-off is weaker control because the segregation of duties has been reduced. With proper SoD, you can reduce the risk of fraud in the business, but only up to a certain level. Prevent the proliferation of fraud and error by reading our A/R best practices and A/P best practices. This Segregation can help prevent errors or fraud such as duplicate payments, overpayments, or the creation of fictitious vendors in accounts payable. Similarly, in accounts receivable, it can prevent the recording of fraudulent sales or the intentional write-off of sales that could be collected. SoD in cash handling is essential to safeguard an organization’s liquid assets.

Segregation of Duties in Cash Handling

Don’t let separation of duties and internal controls break down because resources are limited. A bank requires that its night depository safe be opened twice a day and the deposits processed immediately. Rather than have one person opening and emptying the safe, the bank requires that an officer and another employee open the safe and take the deposits to a third person (bank teller) who processes the deposits. Further, the bank sends or makes available bank statements showing all of the customer’s deposits and other transactions.

Payroll Accounting Procedures

It creates a system of checks and balances that safeguards assets, enhances the accuracy and integrity of financial data, and curbs the potential for fraud. The principles of SoD in financial processes and controls are deeply rooted in the desire to minimize risk. At its core, it is about ensuring that no single person has control over two or more stages of a critical process.

Sit down with each employee and gain an understanding of what they do daily, weekly and monthly. Ask them what their favorite tasks are, where they want to grow and the things they want to learn. Everything on the balance sheet should tie to a statement or schedule. Examples of the separation of duties are noted below for a variety of functional areas. Bachelor’s degree or equivalent in Accounting, Finance, Economics or Business Administrative is required.

The three general functions that must be segregated in accounting are authorization of transactions, recording of transactions, and custody of assets. When looking to understand how to apply a SOD matrix to a business process, it’s helpful to use an example. Let’s say we want to examine a purchasing workflow for potential role and duty conflicts.

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