Separation of duties is the means by which no one person has sole control over the lifespan of a transaction. Ideally, no one person should: Show
There should be at least two sets of eyes on each transaction. Why is it Important?Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person. In addition, separation of duties is a deterrent to fraud because it requires collusion – working with another person – to perpetrate a fraudulent act. What About Small Departments?When separation of duties is not possible due to a small department size, compensating controls must be put in place. Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties. ABCs of Separation of DutiesIn general, no one employee should have job functions in more than one of the following three categories of duties:
How Does it Look?Consider the following in assigning duties to people involved in handling a financial transaction process:
Note: An employee serving in a “back-up” role must be competent and have the same authority as the person normally performing the duty. Example – Cash HandlingResponsibilityDuty CategoryIdeal: 4 PersonGood: 3 PersonMinimal: 2 PersonCash receiving (cashiering) and counting cash as part of the cash drawer closing processAsset handlingEmployee 1Employee 1Joint – Employees 1 and 2*Deposit preparation and the recording of cash receipt on deposit records/logsBookingEmployee 2Employee 2Joint – Employees 1 and 2*Recording the deposit in myUFLBookingEmployee 3Employee 3Initiation: Employee 1Approval: Employee 2 Making the cash deposit at the University Cashier’s OfficeAsset HandlingEmployee 1Employee 1Employee 1Comparing cash deposits recorded in the general ledger to deposit amounts appearing on copies of departmental records/logsComparison/ReviewEmployee 4Employee 3Employee 2***Closing of cash drawer is performed jointly with both coworkers witnessing the count and certifying the deposit amount appearing on the department records/logs. Employee 2 retains and secures the copy of the record/log for ledger review purposes. Answer (A) is correct. When there is proper segregation of duties in an entity it reduces the opportunities to allow persons to be in positions to both?Explanation: Proper segregation of duties reduces the opportunities for one person to be in multiple positions and have the opportunity to conceal fraud and errors. A great example of segregation of duties relates to the handling of cash.
What does separation of duties prevent?Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person.
What is separation of duties and why is it important?Separation of duties is the means by which no one person has sole control over the lifespan of a transaction. Ideally, no one person should be able to initiate, record, authorize and reconcile a transaction.
What is a consequence of separation of duties?Separation of duties also creates jobs for more individuals. If one person was expected to be responsible for multiple jobs, then there would most certainly be fewer jobs for others. This spreading of responsibility allows for a more manageable workload.
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