What is separation of duties?

Limiting each employee’s access to only the things they need to perform their job role helps mitigate insider threats and ensures the damage an attacker can do is limited if an account is compromised. Separation of duties is one of several precautions organizations can take to protect their systems and data; it can be used alongside the following other best practices. Using the “Four eyes principle” prevents a malicious insider from exploiting their privileges for personal gain. For example, if an employee who is issuing refunds has to have those refunds approved by a second employee, this reduces the risk of the first employee fraudulently issuing refunds for personal gain.

Thus, you should examine the tradeoff between increasing the level of control and reducing the amount of efficiency when deciding whether to implement the separation of duties in some areas.
The accounting profession has invested significantly in separation of duties because of the understood risks accumulated over hundreds of years of accounting practice.
Review financials monthly, including a review of the cash flow forecast and the actual costs compared to the budgeted costs.
Both of these methods were tested, and it was found that the first one was more effective.

Create roles, such as “team leader,” “customer service representative,” and “webmaster,” and give permissions to each role. If someone changes their job role within the company, assigning them a different role will revoke the permissions they no longer need and give them access to the tools required for their new job. Managers tasked with SoD management often encounter challenges in obtaining accurate lists and visibility into who has access to specific functions within your organization’s applications. This lack of visibility can make it difficult to ensure employees are not engaged in conflicting tasks that could lead to compliance and security issues. Each of the actors in the process executes activities, which apparently relate to different duties. For example, the accountant who receives a payment performs a series of checks against order details before sending the invoice to the manager for approval, possibly suspending the invoice until any discrepancy has been fixed.

Access Governance solutions have become essential for organizations to effectively manage SoD and to control role changes and user responsibilities. Access governance solutions are crucial in continuously recalibrating your Segregation of Duties protocols to safeguard against internal risks. Without the right solution, managing this process becomes complicated, time-consuming, and often quickly outdated due to constantly changing system access needs. In this Segregation of Duties Buyers Guide, we will discuss the far-reaching impact of SoD on various aspects of your organization’s operations and the features and functions required to meet the challenge. An example of separation of duties is to have the money handling be performed by someone who does not update the records.

Separation of Duties

Increased protection from fraud and errors must be balanced with the increased cost/effort required. The segregation of duties is more difficult to accomplish in a smaller organization, where there are too few people to effectively shift tasks to different people. Another issue with segregation is that shifting tasks among too many people makes the process flow less efficient.

As another example, the person who maintains inventory records does not have physical possession of the inventory.
Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
Lapping can occur if there is no proper SoD in custody and recording functions.
Hence, small companies without sufficient staff to separate employees’ responsibilities will have a greater risk of theft.
The traditional approach to SoD mandates separation between individuals performing different duties.

When a higher level of efficiency is desired, the usual trade-off is weaker control because the segregation of duties has been reduced. With proper SoD, you can reduce the risk of fraud in the business, but only up to a certain level. Prevent the proliferation of fraud and error by reading our A/R best practices and A/P best practices. Performing regular audits on employees to ensure they have the right access for their position and updating user roles as required can go a long way toward improving your organization’s security. Following the four eyes principle helps maintain the integrity of your organization’s data by ensuring any data entered by employees is truthful and accurate.

Rights and permissions

The best practice is for a non-Fiscal Officer/non-Account Delegate to initiate KFS documents, but in the situations where this is not possible, KFS will ensure that two individuals have been involved in the approval of that document. Lastly, the documents should be stamped or perforated to indicate they have been entered into the accounting system thus avoiding a duplicate payment. Only when the details in the three documents are in agreement will a vendor’s invoice be entered into the Accounts Payable account and scheduled for payment.

Petty Cash Accounts

Having a second team member look over the changes reduces the risk of a mistake such as failing to change the default password on some software making it through to the production server. Default or “seeded roles” in your ERP system can pose risks due to their configurations, which may not be specifically designed to prevent SoD violations. In some cases, these roles may contain inherent violations, requiring customization to align with your organization’s compliance needs. Run the Account Delegate (167) report in FIS Decision Support now in order to ensure that each of your accounts has one or more Account Delegates. Create Account Delegate or Account Delegate Global documents as needed to add and/or update the delegate records for your accounts. When the vendor invoice is paid, the voucher and its attachments (including a copy of the check that was issued) will be stored in a paid voucher/invoice file.

Being aware of these trends and how the industry is evolving can help you stay ahead of the curve and better protect your organization. It can be helpful for developers to have administrative privileges on the machines they’re working on and even to be able to make changes to testing machines. However, giving developers administrative access to production machines is a major security risk. The NIST Cybersecurity Framework sets out guidelines and best practices to help organizations maintain high-security standards, avoiding the threats discussed here and avoiding exploits, phishing, and opportunistic attacks. Users may inherit risk through roles in ERP systems like Oracle Cloud and Workday.

In this article, a user profile is defined as a set of permissions granted on a single application or system. Profiles are related to roles, which means that from the perspective of applications and systems, a role can be thought of as a collection of user profiles. Roles can be composed hierarchically; in this case, simpler roles act as building blocks that must be combined to form a single role.

In accordance with University Policy 2701 – Internal Control Policy management is responsible for establishing, maintaining and promoting effective business practices and effective internal controls. The development of written departmental frequently asked questions about xero accounting software policies and procedures are an effective way to maintain a strong system of internal controls. Use documented policies and procedures to clearly delineate the control activities performed throughout the unit’s various business processes.

Terms Similar to Segregation of Duties

If one person made the purchase order and a second person wrote the check it would be much harder to steal. The traditional approach to SoD mandates separation between individuals performing different duties. Duties, in this context, may be seen as classes, or types, of operations. This is not an exhaustive presentation of the software development life cycle, but a list of critical development functions applicable to separation of duties. If they think fraudulently, they can be creative and charge the fuel expenses of their personal vehicle as fuel expenses of the company trucks. The world of cybersecurity and data protection is constantly evolving, as you can see in Announcing Data Protection Trends Report for 2023, which discusses issues such as AI and automation.

The accounting profession has invested significantly in separation of duties because of the understood risks accumulated over hundreds of years of accounting practice. Remember, employees should never have duties listed under more than one role, such as authorization, recording, or custody. For instance, the person who authorizes a check to be written shouldn’t be the same person who records the check in the bookkeeping software or reconciles the checking account.

Regulatory Compliance

The separation of duties concept prohibits the assignment of responsibility to one person for the acquisition of assets, their custody, and the related record keeping. For example, one person can place an order to buy an asset, but a different person must record the transaction in the accounting records. By separating duties, it is much more difficult to commit fraud, since at least two people must work together to do so – which is far less likely than if one person is responsible for all aspects of an accounting transaction. To apply this table in your small business, you must first classify employees with authorization, recording, and custody roles.