Segregation of Duties

In a large business, it is typical to have a n accounting department which provides timely and accurate financial reports, where internal controls are put into place to ensure accurate financial records and to protect a business from fraud. However, smaller businesses which have fewer employers who wear a few hats, are more susceptible to employee fraud.

A simple process to reduce the risk of fraud is known as segregation of duties (or separation of duties. It involves ensuring that it is not one person who fulfills ALL bookkeeping or accounting functions. The payables and receivables processes must be split among a few staff to deter fraud and errors. This introduces a system of checks and balances into the business.

If the same person handles payment of invoices and recording the transactions, that person will find it easier to misappropriate money and then record numbers that cover up that misappropriation. That person may create a fake bill, then pay the bill while actually pocketing the funds themselves. They then record a payment to the vendor in their books, which covers their tracks.

However, when duties are separated such that one person processes the financial transaction and another records that transaction), it reduces the probability of fraud occurring. This is because 2 staff will have to collaborate to perpetrate the theft which substantially decreases the likelihood of that happening.

 

Download our eBook for more tips on how to reduce the risk of fraud in your business. If you need assistance with bookkeeping or anything else relating to numbers, contact us for assistance today. 

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