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SEGREGATION OF DUTIES
Segregation of Duties Defined
Segregation of duties is critical to effective internal control because it reduces the risk of mistakes and
inappropriate actions. Adequate segregation of duties reduces the likelihood that errors both
intentional and unintentional, will remain undetected by providing for separate processing by different
individuals at various stages of a transaction and for independent reviews of the work performed.
The basic idea underlying segregation of duties is that no employee or group should be in a position both to perpetrate and to conceal error s or fraud in the normal course of their duties.
Incompatible Duties to be Segregated
- Custody of assets
- Authorization or approval of related transactions affecting those assets
- Recording or reporting of related transactions
- Reconciliation of the transaction or transaction activity
Requirement For Segregation of Duties
At the most basic level, segregation of duties means that no single individual should have control over
two or more phases of a transaction or operation. Management should assign responsibilities to ensure
a crosscheck of duties.
If a single person can carry out and conceal errors and/or irregularities in the course of performing their
day-to-day activities, they have generally been assigned or allowed access to incompatible duties or
responsibilities.
Fixed Assets
Employees responsible for
approving the purchase or disposal
of the fixed assets should not be responsible for any of the following functions:
- Record the transaction (e.g., add, delete, write-off or dispose assets) in the fixed asset ledger
- Determine the useful life of the fixed assets
- Determine the company’s depreciation policy
- Record or adjust the calculated depreciation on the fixed asset
- Disposal of the fixed asset
Employees responsible for
purchases or disposals of fixed
assets should not have access to
record transactions in the fixed
asset ledger.
Employee access to the master files of asset categories and depreciation tables should be restricted to an employee who is not responsible for
authorizing, recording or reconciling
fixed assets.
RESPONSIBILITIES OF INTERNAL AUDITORS
Determining the organization’s compliance with relevant laws and regulations.
Evaluating and making recommendations that can assist in improving internal control.
Recommending procedures that can help prevent or detect fraud, waste and abuse by removing, or significantly reducing, the opportunity to commit and conceal improper or incorrect actions.
Recommending best practices that helps to ensure strong internal controls.
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