Reducing Segregation of Duties Risk in Small Organizations

Segregation of duties (“SoD”) is one of the more important controls that can help reduce the risk of errors and fraud within an organization. The concept of SoD can be described as making sure the individual responsible for recording a financial transaction cannot also approve the transaction.  

However, for smaller companies with limited accounting and finance resources, it can be challenging to properly segregate the roles. Here are a few suggestions for increasing the SoD in your organization, even if there are limited resources in the accounting function. 

1.  Perform an Internal Risk Area Assessment 

Start by identifying which functions and areas within your organization have the greatest potential risk to the organization and begin to focus on these. They are typically areas that involve handing finances and monetary assets. 

2.   Identify the Members Who Own Each Function 

Outline the responsibilities of those in your accounting function to understand where opportunities may exist to shift responsibilities. If you utilize any outsourced accounting providers, consider having them prepare the transactions, yet keep the approval for each in-house or as an internal process.  

3.  Establish and Enhance Your Controls Library 

Every great internal plan should include a detailed library of controls, including documented roles within the accounting procedures. You need to communicate the risks to your employees so that they understand the importance of proper SoD. Additionally, consider adding access controls to not only information but also to features in your accounting system to make sure that SoD rules are enforced automatically.  

4.  Include Your Team 

Include feedback and insight from the people closest to these processes: your team. Ask for suggestions from your employees, and make sure they understand the increased risk when proper SoD isn’t achievable.  

Addressing SoD issues directly can greatly reduce your organization’s exposure to errors and fraud.