Segregation of Duties

Adequate segregation of duties reduces the likelihood that errors (intentional or 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 one employee or group of employees should be in a position both to perpetrate and conceal errors or irregularities in the normal course of their duties. In general, the principal incompatible duties to be segregated are: authorisation, custody of assets, and recording or reporting of transactions. In addition, a control over the processing of a transaction generally should not be performed by the same individual responsible for recording or reporting the transaction.

The potential problem areas are only an indication of where segregation of duties controls are breaking down or are lacking.

Bank and Cash

The handling of cash receipts and accounting for such receipts need to be segregated if all the control objectives are to be met. Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing an accounting check over the receipt of cash. For example, those who handle cash receipts would not have the authority to prepare or sign cheques, would not have access to accounting records, and would not be involved in reconciling bank accounts. The duties to be considered in determining the adequacy of segregation of duties among those responsible for cash receipts transactions are listed in the following chart. In smaller companies, these duties may also need to be reviewed along with those of other functions, as some individuals may have responsibilities in more than one area. List the names of individuals responsible for particular functions in the column indicated (e.g., the names of the individuals who are responsible for maintaining cash receipts journal would fall into the recording column). Review the chart for individuals whose names are listed in more than one column and then make a determination whether that represents a potential lack of segregation of duties. Description Opening of mail and listing of cheques Handling of cash receipts Preparation of bank deposits Comparison of listing of cheques to bank deposits Maintenance of cash receipts journal Maintenance of debtors masterfile records Reconciliation of bank accounts Authorisation of write-offs of bad debts Control of the accuracy, completeness of, and access to cash receipts programs and data files Authorisation Custody of Assets Recording Control Procedure

Debtors - Accounts Receivable

The order entry, credit, shipping, billing, collecting, credit memo, MIS and general accounting activities need to be appropriately segregated if all control objectives are to be met. For example, those who perform the order entry (sales) activity, including those who maintain contact with customers and issue sales orders, would not perform any credit approval, shipping, billing, cash receipts, credit memo or accounting activities. The duties to be considered in determining the adequacy of segregation of duties among those responsible for sales transactions are listed in the following chart. In smaller companies, these duties may also need to be reviewed along with those of other functions, as some individuals may have responsibilities in more than one area. List the names of individuals responsible for particular functions in the column indicated (e.g., the names of the individuals who are responsible for issuing sales orders would fall into the recording column). Review the chart for individuals whose names are listed in more than one column and then make a determination whether that represents a potential lack of segregation of duties. Also consider whether individuals are performing incompatible duties within the same column (e.g., control procedure).

Description Issuance of sales orders Approval of credit Approval of access to credit-related data files Authorisation of shipments Preparation of shipping documents Handling of inventories for shipment Preparation of billings Verification of billings Approval of access to pricing-related data files Accounting for the numerical sequence of sales invoices Maintenance of the sales journal Maintenance of debtors records Reconciliation of the accounts receivable records with the general ledger control account Review and approval of the monthly aged accounts receivable trial balance Preparation of monthly customer statements Review and follow-up of customer inquiries and differences Handling of cash receipts from customers Authorisation of write-offs of bad debts Control of the accuracy, completeness of, and access to sales and debtor programs and data files

Authorisation

Custody of Assets

Recording

Control Procedure

Payroll - Human Resources

Timekeeping, handling the payroll cash disbursements, MIS, and accounting for payroll need to be appropriately segregated if all the control objectives are to be met. Adequate segregation of duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providing an accounting check over the payment of salaries and wages. The duties to be considered in determining the adequacy of segregation of duties among those responsible for payroll transactions are listed in the following chart. In smaller companies, these duties may also need to be reviewed along with those of other functions, as some individuals may have responsibilities in more than one area. List the names of individuals responsible for particular functions in the column indicated (e.g., the names of the individuals who are responsible for preparing payroll checks would fall into the recording column). Review the chart for individuals whose names are listed in more than one column and then make a determination whether that represents a potential lack of segregation of duties. Also consider whether individuals are performing incompatible duties within the same column (e.g., control procedure).

Description Maintenance of personnel files Approval of access to personnel master files Approval of wage and salary increases, hirings, and terminations Control of timekeeping Maintenance of payroll journals Preparation of payroll cheques Approval of the payroll Signing of cheques Distribution of cheques Control of unclaimed payroll cheques Reconciliation of payroll bank accounts Control of the accuracy, completeness of, and access to payroll programs and data files

Authorisation

Custody of Assets

Recording

Control Procedure

Creditors - Puchases - Accounts Payable

The requisition, ordering, receiving, paying and general accounting activities need to be appropriately segregated if all control objectives are to be met. For example, those who perform the ordering (purchasing) activity, including those who maintain contact with outside suppliers and issue purchase orders, would not perform any receiving, accounting, or cash disbursement activities. The duties to be considered in determining the adequacy of segregation of duties among those responsible for purchases transactions are listed in the following chart. In smaller organizations, these duties may also need to be reviewed along with those of other functions, as some individuals may have responsibilities in more than one area. List the names of individuals responsible for particular functions in the column indicated (e.g., the names of the individuals who are responsible for issuing purchase requisitions would fall into the recording column). Review the chart for individuals whose names are listed in more than one column and then make a determination whether that represents a potential lack of segregation of duties. Also consider whether individuals are performing incompatible duties within the same column (e.g., control procedure).

Description Issuance of purchase requisitions Approval of purchase requisitions Issuance of purchase orders Approval of access to creditor master files Approval of purchase orders Approval of access to purchase-related data files Issuance of debit memos to creditors Issuance and signing of receiving reports Matching of invoices to purchase orders and receiving reports Capturing of creditor inoices / coding account distribution of creditor invoices Approval of vouchers for payment Preparation of cheques Signing of cheques Distribution of cheques Maintenance of the purchases journals Maintenance of creditors records Reconciliation of the accounts payable records (or the total of unpaid vouchers) with the general ledger control account Control of the accuracy, completeness of, and access to purchasing and accounts payable programs and data files

Authorisation

Custody of Assets

Recording

Control Procedure