Segregation of duties is one of the most effective internal controls. It just means that no one person should be responsible for doing everything. Authorization, recording, and custody of assets should be performed by different employees. Different employees should:
All that needs to be done is to ensure that enough people are involved in the handling of funds received so that each employee feels protected.
Effective segregation of duties represents a vital component of any organization’s internal control system. Segregation of duties controls are designed to help prevent employees from committing errors or engaging in fraudulent activity.
Internal auditors are often charged with reviewing employees’ tasks and transactions to identify potential segregation of duties conflicts and make recommendations to minimize their impact.
In some departments with a limited number of employees, it may not always be possible to achieve proper segregation of duties. In those cases, appropriate compensating controls must be established to minimize the risk of fraudulent activity (e.g., more supervision, monitoring, and added management oversight).