Segregation of duties is a type of preventive internal control that ensures an individual does not perform multiple duties in which committing and concealing theft or fraud would be easier to accomplish. Duties should be segregated so that one person’s work provides a cross-check for another person’s work. Governments should ensure that each of the following duties are performed by separate individuals:
- Bookkeeping
- Authorization
- Reconciliation
- Custody of Assets
Segregating the duties of payroll processing to various employees is important for governments. The following payroll duties should be segregated (when possible):
- Entering employee time
- Processing and printing payroll checks
- Reconciliation of the payroll bank account
- Deleting terminated employees and setting up new employees in the accounting system
- Entering and changing wage rates
Segregating duties may be more difficult in smaller governmental entities due to fewer employees. However, the smaller the government the greater the need for fraud prevention. Segregating duties and implementing the following compensating controls may assist smaller governments:
- City Council or board involvement
- Review checks written
- Review monthly bank reconciliation and scan for large/ unusual transactions
- Act as a secondary check signer for transactions over a certain dollar threshold
- Act as required secondary person for all wire transfers
- Cross-train existing staff to perform other functions and duties
- Train individuals to perform certain accounting functions (ex. payroll, accounts payable)
- Periodic rotation of duties among employees allows management to observe if there are any noticeable changes
- Outsource accounting functions
- CDS offers a variety of outsourced accounting services including month-end closing activities, bookkeeping, bank reconciliation and payroll processing services.
Segregating duties may not eliminate all instances of fraud and theft, but it is a great way to increase your internal control. For more information, contact one of our Governmental Audit experts at (888) 388-1040.
