Segregation of Duties Best Practices – Matt Gardiner, CPA, Auditor

A common struggle for many small to medium sized entities is sufficiently segregating duties related to the accounting process to avoid a potential risk of fraud. It is important to segregate the duties of staff to reduce the likelihood that a single individual has complete control over a process or an asset which could expose a company to risk.

Common duties can be broken down into three operations:

+ Custody of assets

+ Authorization or approval of transactions

+ Recording or reporting of transactions

Some examples of the above operations not being properly segregated are as follows:

+ Authorized to receive and open the company’s mail and ability to record transactions

+ Ability to make payments and reconcile bank statements

+ Ability to make and authorize payments

To mitigate these risks, it’s important to consider the areas of your unique accounting process which generate the most risk. Once identified, put in place an authorization and approval process to reduce the risk to the company.

In some instances, it may be impractical or too expensive to eliminate a risk entirely, so keep that in mind when considering your company’s risks.

At the end of the day, your company’s processes and risks are unique based on your staffing and structure – there is no silver bullet to mitigating these risks entirely. Make a commitment to regularly evaluate the risks facing your company’s accounting system.