Separation of Duties Controls You Should be Using

Separation of duties controls are used to help ensure the integrity of your accounting records and protect your business assets. The basic premise is to have two or more people involved in business transactions, more specifically, one person should have physical control of the assets, and another should be responsible for the related record keeping.

The point of separation of duties is to mitigate shenanigans by your employees that would impair the success of your business (drain your checking account).

Small companies generally use the excuse that they don’t have enough people to effectively set up proper separation of duties. Nonsense. Here are some ideas that are easy to incorporate into a small business.

Most of the abuse committed within small organizations involves cash receipts or cash payments. See if these basic ideas would work in your business:

Cash Receipts

Person A:

• Open mail and remove checks
• Restrictively endorse checks
• Make photocopies of checks and forward to accounts receivable person
• Create bank deposit and deposit at bank and forward copy to accounts receivable person

Person B (accounts receivable):

• Apply check payments to outstanding accounts
• Compare total cash payments recorded to copy of bank deposit

In this case you have effectively separated the custody of the checks from the record keeping. If Person A fraudulently converts the check for their own use, the customer who sent in the check will wonder why their account does not reflect the payment. Investigation ensues.

Cash Payments

Person A:

• Maintains accounts payable records
• Prints checks and records in accounting records

Person B:

• Has no record keeping responsibilities
• Signs checks
• Mails checks to vendors

In this case the record keeping is separate from the check signing and disbursement.  If Person B decides to start writing checks to himself, the accounting records will ensnare him shortly.

And this is the easiest control: Instead of having your bank send the monthly bank statement to your business, have them send it to your home. Review it first and then turn it over to the accounting department.

Analyze your existing business processes for separation of duties controls, and fix if necessary. These types of changes generally don’t cost you anything, just a change in process. Worth it.

A well integrated and managed hosted ERP system like myGPcloud can facilitate executing proper separation of duties.

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