What is Separation of Duties?
June 27, 2022
What is separation of duties and why is it important?
Separation of duties are internal controls put in place to prevent fraud and theft and to minimize errors in the accounting department. These controls act as a fraud deterrent, holds staff accountable and helps keep the books clean and accurate.
Implementing separation of duties mean that no one person in an organization can record, authorize, and reconcile the same transaction. These steps should be split among two or more individuals. Some examples of separation of duties include:
- The person who records the transaction and prepares the cheques should not be the person who reviews and signs the payment. This will prevent an employee from creating fake invoices, vendors, or credit memos and writing the cheques to themselves
- The person who is recording the transactions into the ledger and making the bank deposits should not be the person who completes the bank reconciliation
- If Cash is involved, again the one who pulls and counts the cash is different from the one who will verify and create the bank deposit
- Payroll cheques should be prepared by one person and released by another to prevent inflated hours
- Balance sheet asset accounts should have supporting documents to match to, and this should be reviewed by the owner or senior team member
If you would like help setting up separations of duties within your company, please contact us.