Segregation of Duties
Definition
The principle that the authorisation, custody, and recording of any transaction should be performed by different people. Its absence is the single most common control weakness enabling asset misappropriation.
- Principle
- Authorisation, custody and recording split across different people
- Failure mode
- Most common control weakness enabling asset misappropriation
- Field
- Internal control / fraud examination
Common questions
Why does a single person controlling all three functions create fraud risk?+
If one person can both approve a transaction and record it in the books, they can create, conceal and cover a fraudulent transaction entirely on their own, with no independent check to catch the discrepancy.
How do small organisations that cannot fully separate duties compensate?+
Common substitutes include mandatory job rotation, surprise audits, and requiring a second person to review or reconcile records even if they cannot fully separate the underlying functions.
Related terms
- Cash Larceny
- Taking cash that has already been recorded in the accounting system. The record exists, so the theft creates a provable discrepancy between...
- Fraudulent Disbursement
- A scheme in which the perpetrator manipulates the organisation's outbound payment process to divert money to themselves or an accomplice. The main...
- Ghost Employee
- A fictitious or terminated worker whose record remains active on the payroll master file. Wages are disbursed under that record and diverted...
- Lapping
- A scheme to conceal the theft of cash from customer receipts by applying a later customer's payment to the earlier customer's account....
- Skimming
- An off-book cash theft: revenue is stolen before it enters the accounting system, so no entry is ever made. Skimming is harder...