Auditing

Auditing

Segregation of Duties

No one person should:

  • Initiate transaction
  • Approve transaction
  • Record transaction
  • Reconcile balances
  • Handle assets
  • Review reports

Segregation of duties is critical to effective internal control; it reduces the risk of both erroneous and inappropriate actions. In general, the approval function, the accounting/reconciling function, and the asset custody function should be separated among employees. When these functions cannot be separated, a detailed supervisory review of related activities is required as a compensating control activity. Segregation of duties is a deterrent to fraud because it requires collusion with another person to perpetrate a fraudulent act.

Specific examples of segregation 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.

 

Last Updated: November 17, 2008 (vm).