The Importance of Separation of Duties
February 11, 2019
By Caitlyn Lowry
Separation of duties is a crucial part of any organization’s system of internal controls. Separation of duties means that there is more than one person required to process a single transaction or task. Many not-for-profit organizations face separation of duties challenges due to resource constraints, such as budget and personnel. However, separation of duties is possible no matter the size of the organization. This form of internal control is necessary because it provides an extra layer of security, helping to protect organizations from fraud or unintentional errors.
For smaller organizations achieving a sufficient level of separation of duties can be difficult; however, it’s possible with just two people. Even for an organization that has just one accountant or a professional staff and an executive director, certain tasks can be delegated between the two individuals. For example, the accountant/professional staff would be in charge of mailing and writing checks, reconciling the bank statements, recording debits/credit, and approving payroll. The executive director would be in charge of receiving the bank statements, signing the checks, making deposits, distributing paychecks, and reviewing the bank reconciliations.
Overall, separation of duties will help the organization improve oversight and enhance the reviews being performed to help prevent future thefts and fraudulent acts from occurring. Organizations should strive to have some separation between having custody of assets, authorizing the use of assets and the recordkeeping of assets. These strategies should be implemented as early on as possible, so that when the organization does experience growth, the controls will only be strengthened by the additional personnel.