To Prevent Fraud and Errors.
“Segregation of Duties (SOD) is a basic building block of sustainable risk management and internal controls for a business” (aicpa.org, Segregation of Duties)
What this definition is saying is that by implementing Segregation of Duties within your organization, you will be conducting proper risk management.
By Implemented Segregation of Duties, you are taking actions that help you manage the risk of fraud and errors.
This is actually quite a simple process, think of it like checks and balances.
By utilizing these steps you will not only deter fraud within your organization, but you will also be able to make sure that the people who have their hands on your money are actually managing it properly.
You will be able to catch mistakes that would slip through the crack otherwise.
Authorization
Record Keeping
Custody
All three of these phases must have different employees responsible for them.
If an employee’s responsibilities encompass 2 or more phases of a transaction (Segregation of Duties) they have the opportunity to divert company assets for personal gain, which increases the level of fraud risk.
This individual is responsible for authorizing transactions.
They have:
General Authorization
Specific Authorization.
A record of cash collected must be maintained by the one responsible.
Some of their duties include:
Preparing source documents
Maintaining journals, ledgers, and/or other files
Preparing reconciliations
Preparing performance reports
This individual is responsible for the physical control of Assets.
Some of their duties include:
Handling cash
Handling inventories, tools, and/or fixed assets
Writing checks
Receiving checks in the mail
Segregation of Duties is a form of Internal controls.
Internal control is a process put in place to minimize risk, ensure compliance with applicable laws and regulations, and eliminate fraud and abuse.
To learn more about Internal Controls go to our blog article – What are “Internal Controls”?
Source: Ghosn, Anthony (unk.) Segregation of Duties (SOD), © 2006-2017 American Institute of CPAs. All rights reserved. Used with permission. Retrieved July 16, 2017 from:https://www.aicpa.org/InterestAreas/Information Technology/Resources/Auditing/InternalControl/Pages/value-strategy-through-segregation-of-duties.aspx
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