You hear accountants/auditors talk about segregation of duties but do owners, Board Members and Council Members understand what it means? Surely, these individuals understand leaving such a vital part of the operations to a single person would be disastrous to the organization whereas working as a team toward a common goal produces success. The financial part of an organization is the heart of the organization and must be protected from the risk of fraud, risk of errors and risk of inefficiency. These risks are overcome by segregating duties and responsibilities in the accounting department.
Risk of fraud
The risk of fraud is the biggest risk for the lack of segregation of duties. There is no oversight when a single person performs every financial function. Holding several people responsible for the finances reduces fraud risk and acts as a deterrent to keep employees from attempting fraud. Making a different employee responsible for reviewing the work of others is a good oversight control. Examples include assigning someone other than the individual performing the work to review and signoff on the bank reconciliations, checks and payroll.
Risk of error
Another problem with the lack of segregation of duties is the increased risk of error. Nobody is perfect, and errors will be missed if no review is performed. Financial data, management’s reports/budgets, IRS reports, etc. could contain errors and would most likely be problematic for the organization. Like the risk of fraud, reviews are important in detecting errors. Make sure you have a solid accounting team in place, delegate work among individuals and reconcile balance sheet accounts monthly.
Risk of inefficiency
Inefficiencies could also result in the lack of segregation of duties. People tend to work on tasks they are good at and put off those tasks they are not good at. Some vital tasks could go undone when there are no controls or oversight. Working as a team makes everyone accountable to another team member. A month or year-end checklist is helpful to inform every team member who is responsible for various tasks. The checklist also ensures the monthly/yearly tasks are getting performed timely.
A good accounting team providing accurate and timely financial data to those members of the organization making key decisions should be of utmost importance to owners, Board Members and Council Members. Segregating duties and implementing sound checks and balances minimizes the risks of fraud, error and inefficiencies. It will provide a cohesive accounting team, protect the finances and contribute to your organization’s efficiencies.
Marilyn Mays, CPA