Segregation of Duties

Appendix A

No one person should:

• Initiate transaction

• Approve transaction

• Approve supplier selection (for procurement)

• Record transaction

• Reconcile balances

• Handle assets

• Review reports

Segregation of duties is critical to effective internal control; it reduces the risk of both erroneous and fraudulent actions. In general, the approval function, the accounting/reconciling function, procurement duties and the custody of assets should be separated among employees. When these functions cannot be separated, a detailed supervisory review of related activities is required as a compensating control activity. Segregation of duties is a deterrent to fraud because it requires collusion with another person to perpetrate a fraudulent act.

• Specific examples of segregation of duties are as follows:

• The person who requisitions the purchase of goods or services should not be the person who approves the purchase.

• The person who approves the purchase of goods or services should not be the person who reconciles the monthly financial reports.

• The person who approves the purchase of goods or services should not be the person who authorises payment.

• The person who maintains and reconciles the accounting records should not be able to authorise payments.

• The person who specifies the goods or services should not be the (only) person who selects the bidders

• The person who opens the bids should not be the (only) person who selects the winning bid (or tender)

• The person who opens the mail and prepares a listing of cheques received should not be the person who makes the deposit.

• The person who opens the mail and prepares a listing of cheques received should not be the person who maintains the accounts receivable accounting records.