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NOVEMBER 2024 - NEWSLETTER SEGREGATION OF DUTIES

SEGREGATION OF DUTIES


Segregation of Duties Defined

Segregation of duties is critical to effective internal control because it reduces the risk of mistakes and

inappropriate actions. Adequate segregation of duties reduces the likelihood that errors both

intentional and unintentional, will remain undetected by providing for separate processing by different

individuals at various stages of a transaction and for independent reviews of the work performed.


The basic idea underlying segregation of duties is that no employee or group should be in a position both to perpetrate and to conceal error s or fraud in the normal course of their duties.


Incompatible Duties to be Segregated

  • Custody of assets

  • Authorization or approval of related transactions affecting those assets

  • Recording or reporting of related transactions

  • Reconciliation of the transaction or transaction activity


Requirement For Segregation of Duties

At the most basic level, segregation of duties means that no single individual should have control over

two or more phases of a transaction or operation. Management should assign responsibilities to ensure

a crosscheck of duties.


If a single person can carry out and conceal errors and/or irregularities in the course of performing their

day-to-day activities, they have generally been assigned or allowed access to incompatible duties or

responsibilities.


Fixed Assets

Employees responsible for

approving the purchase or disposal

of the fixed assets should not be responsible for any of the following functions:

  • Record the transaction (e.g., add, delete, write-off or dispose assets) in the fixed asset ledger

  • Determine the useful life of the fixed assets

  • Determine the company’s depreciation policy

  • Record or adjust the calculated depreciation on the fixed asset

  • Disposal of the fixed asset


Employees responsible for

purchases or disposals of fixed

assets should not have access to

record transactions in the fixed

asset ledger.


Employee access to the master files of asset categories and depreciation tables should be restricted to an employee who is not responsible for

authorizing, recording or reconciling

fixed assets.




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