Separation of Duties

What is Separation of Duties?

Separation of duties, sometimes referred to as segregation of duties, is an accounting internal control which means that a financial process is dealt with by at least two individuals in order to prevent error, misappropriation or fraud.

In practice the separation of duties means ensuring that the person dealing with physical assets such as cash, inventory, supplies etc, is not the same person responsible for the recording and bookkeeping of the transactions relating to those assets.

In addition, a separate person should ideally be responsible for an overall review of the bookkeeping transactions, as a form of internal audit.

Separation of Duties Examples

A common example of separation of duties is dealing with purchases. In a business where three employees are available, the duties could be separated as follows:

Separation of Duty – Purchasing
Process 1 2 3 Type
Initiate order Yes Asset handling
Approve order Yes Bookkeeping
Confirm receipt of goods Yes Asset handling
Prepare ledger posting Yes Bookkeeping
Approve ledger posting Yes Bookkeeping
Review ledger transactions Yes Reviewing

Although separation of duties is a useful internal control, it needs to be balanced against the cost and inefficiency of employing additional staff.

In a small business, it is not always possible to separate the duties for all financial processes and emphasis should be placed on the assets most at risk such as cash, and inventory.

For further information see the Wikipedia separation of duties definition.

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Separation of Duties March 23rd, 2016Team

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