SEGREGATION OF DUTIES

Adequate segregation of duties reduces the likelihood that errors (intentional or 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 one employee or group of employees
should be in a position both to perpetrate and conceal errors or irregularities in the normal course of their duties. In
general, the principal incompatible duties to be segregated are: authorization, custody of assets, and recording or
reporting of transactions. In addition, a control over the processing of a transaction generally should not be performed by
the same individual responsible for recording or reporting the transaction.

OBJECTIVE
The accompanying matrices are designed to provide guidance on how business processes and functions should be
organized so as to ensure adequate segregation of duties. They should be used for guidance in developing and
reationalizing the organization of duties within an business.
HOW TO USE THE TOOL
Step 1. Review each orange row separately. These include the common

Signing of checks/approving bank

Maintenance of personnel master

Review changes to the personnel

duties found within a particular process.

Maintenance of payroll journals

checks/execute wire transfers

The orange row across the top of the matrix corresponds to the

Entry of time into the system

duties in the orange column along the left side.
1

Approval of the payroll

Preparation of payroll
Step 2. Going across each row, a grey box suggests the duties of the
intersecting column should not be performed by the same person
performing the task associated with that row. A white box, on the
other hand, indicates complimentary duties that can be performed 2

master file
by the same person without violating segregation of duties

transfers
parameters.

file
Step 3. The green shaded area allows you to input the name of the
person or the type of employee (e.g., Payroll Manager) assigned
to perform the task. When you type this information into the Tasks (duties) to
green rows contained in the column on the left side, that 3 be performed
information will automatically be copied into the corresponding
cells across the top of the matrix.
Note: The tool does not allow you to input any information in any Individual(s)
other cells. assigned to

John Smith

John Smith
perfrom the task
Step 4. As you enter the information in step 3, the tool will alert you where
segregation of duties may be violated. If a conflict is detected, an
X will appear in the cell where the conflict exists. Entry of time into the system
4
Maintenance of personnel master file John Smith
X
Review changes to the personnel
WHAT TO DO WHEN A CONFLICT IS DETECTED master file
When you notice a conflict, you should reorganize task assignments until Maintenance of payroll journals John Smith
X
duties are adequately segregated. In cases where reorganizing duties may
not be viable, you may mitigate the risk by implementing compensating Preparation of payroll
controls, such as review of edit logs or other types of supervisory reviews, checks/execute wire transfers
to assure all actions of the performer of the tasks are appropriate and that Approval of the payroll
no impropriety is occuring. However, segregating the duties is the
preferred control. Signing of checks/approving bank
transfers

Step 1. Go to the Summary worksheet.

Step 2. For each X, insert the data per the example below (this example
is for the conflict identified here):

Cycle / Process Task Conflicting Task Description of Compensating Control(s)

Payroll Maintenance of personnel Maintenance of payroll Insert description of compensating
master file journals controls here.
ORDER TO CASH Order to Cash
The order entry, credit, shipping, billing, collecting, credit memo, and general accounting activities need to be appropriately segregated if all control objectives are to be met. For example,
those who perform the order entry (sales) activity, including those who maintain contact with customers and issue sales orders, would not perform any credit approval, shipping, billing,
cash receipts, credit memo or accounting activities.

Review and approve credit memos

Handle of inventories for shipment

Maintain accounts receivable sub-

Reconcile sub-ledger information

Review and approve write-offs of

accounts receivable trial balance
Establish credit limits/payment

Maintain customer master file

Override credit holds/approve

Apply payments to customer

Review changes to price list

Adjust inventory sub-ledger

Perform bank reconciliation

Enter write-offs of bad debt

Enter changes to price list

Review and approve aged

Post to the general ledger

Handle returned products

Receive cash/remittance
Adjust inventory records
Enter customer order

Issue credit memos

overrides

accounts

bad debt
ledger
terms
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Enter customer order

Issue credit memos

Review and approve credit memos

Establish credit limits/payment terms

Override credit holds/approve

overrides

Handle of inventories for shipment

Handle returned products

Adjust inventory records

Maintain accounts receivable sub-

ledger

Adjust inventory sub-ledger

PROCURE TO PAY
The requisition, ordering, receiving, paying and general accounting activities need to be appropriately segregated if all control objectives are to be met. For example, those who perform
the ordering (purchasing) activity, including those who maintain contact with outside suppliers and issue purchase orders, would not perform any receiving, accounting, or cash
disbursement activities.

Review changes to vendor master

Maintenance of vendor master file

Issuance and signing of receiving

Issuance of purchase requisitions

Approval of purchase requisitions

Matching of invoices to purchase

Inventory receipt and custody
Issuance of purchase orders

Approval of purchase orders

orders and receiving reports

reports
files
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Issuance of purchase requisitions

Approval of purchase requisitions

Issuance of purchase orders

Maintenance of vendor master file

Review changes to vendor master

files

Approval of purchase orders

Inventory receipt and custody

Issuance and signing of receiving

reports

Matching of invoices to purchase

orders and receiving reports
INVENTORY - PRODUCTION
The requisition, custody, verification and general accounting activities need to be appropriately segregated if all control objectives are to be met. For example, those who perform custody
activities (e.g., receiving, shipping and handling) should not also have responsibility for making inventory adjustments in the system or to maintain the inventory journals or subledgers.

Reconciliation of received goods to

movements/adjustments within the

warehouse stores/accounts within
information into inventory system

Verification of inventory disposal

Entering inventory adjustments
Issuance of inventory orders to

Performing full/cycle inventory

Verification of inventory count

Approval of inventory orders
Forecast of inventory needs

Entering received shipment

Moving inventory between

Moving physical inventory

Performing quality control

according to instructions
Approval of inventory

Disposal of inventory
Receipt of inventory

shipping manifest

the system

(witness)
suppliers

system

counts

results
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task
Jill

Jill

Jill
Forecast of inventory needs Jill
X

Approval of inventory orders Jill

X X

Issuance of inventory orders to Jill

suppliers X

Receipt of inventory

Reconciliation of received goods to

shipping manifest

Entering received shipment

information into inventory system

Moving inventory between

warehouse stores/accounts within
the system
Entering inventory adjustments
FIXED ASSETS
The acquisition, custody, disposal, CPA process (including bidding and documentation), and general accounting activities regarding fixed assets need to be appropriately seg
objectives are to be met. For example, those who are responsible for requesting and having custody of fixed assets, should not also be able to approve their own acquisition
physical verification or have access to make modifications in the fixed asset system or general ledger.

Requests for maintenance, repairs,

Recording of acquisitions/disposals

maintenance, repairs, transfers,

transfers, retirements, etc.

Approval for cost overrun

Request for cost overrun
Approval of requests for
Approval of acquisition
Acquisition of assets

Approval of disposal

Preparation of CPA
Disposal of assets

Approval of CPA
retirements, etc.
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Acquisition of assets

Approval of acquisition

Disposal of assets

Approval of disposal

Recording of acquisitions/disposals

Requests for maintenance, repairs,

transfers, retirements, etc.

Approval of requests for

maintenance, repairs, transfers,
retirements, etc.
Preparation of CPA

Approval of CPA

Request for cost overrun

Approval for cost overrun

Maintenance of detailed records

CASH MANAGEMENT
The handling of cash receipts and accounting for such receipts need to be segregated if all the control
likelihood that errors (intentional or unintentional) will remain undetected by providing an accounting ch
would not have the authority to prepare or sign checks, would not have access to accounting records, a

(sign/suthorize checks, authorize

Opening of mail and listing of

Approve disbursements
Prepare and process

wire transfers, etc.)

disbursements
checks
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Opening of mail and listing of checks

Prepare and process disbursements

Approve disbursements
(sign/suthorize checks, authorize
wire transfers, etc.)
Receive and process cash receipts

Access blank checks and facsimile

plates
Enter/Edit wire transfers into the
system

Prepare bank reconciliations

Approve bank reconciliations

Maintain cash receipts journal

Maintain debtor master file records

Record transactions in the subsidiary

ledger

Reconcile the subsidiary ledger to

the general ledger

Prepare/make bank deposits

Compare listing of checks to bank

deposits
Receive and process cash receipts

Access blank checks and facsimile

plates

Enter/Edit wire transfers into the

system

Prepare bank reconciliations

Approve bank reconciliations

Maintain cash receipts journal

Maintain debtor master file records

Record transactions in the

subsidiary ledger

Reconcile the subsidiary ledger to

s to accounting records, and would not be involved in reconciling bank accounts.

the general ledger

Prepare/make bank deposits

regated if all the control objectives are to be met. Adequate segregation of duties reduces the

Compare listing of checks to bank

deposits
oviding an accounting check over the receipt of cash. For example, those who handle cash receipts
PAYROLL
Timekeeping, handling the payroll cash disbursements and accounting for payroll need to be appropria
duties reduces the likelihood that errors (intentional or unintentional) will remain undetected by providin

increases, hiring, and terminations

Maintenance of personnel files

Approval of wage and salary

Control of timekeeping
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Maintenance of personnel files

Approval of wage and salary

increases, hiring, and terminations

Control of timekeeping

Entry of time into the system

Maintenance of personnel master file

Review changes to the personnel

master file
Maintenance of payroll journals

Preparation of payroll
checks/execute wire transfers

Approval of the payroll

Signing of checks/approving bank

transfers

Distribution of checks

Control of unclaimed payroll checks

Reconciliation of payroll bank

accounts

Control of the accuracy,

completeness of, and access to
payroll programs and data files
Entry of time into the system

Maintenance of personnel master

file

Review changes to the personnel

master file

Maintenance of payroll journals

Preparation of payroll
checks/execute wire transfers

Approval of the payroll

Signing of checks/approving bank

transfers

Distribution of checks

Control of unclaimed payroll

checks

Reconciliation of payroll bank

n undetected by providing an accounting check over the payment of salaries and wages.

accounts

Control of the accuracy,

completeness of, and access to
payroll programs and data files
roll need to be appropriately segregated if all the control objectives are to be met. Adequate segregation of
e segregation of
INFORMATION TECHNOLOGY
When duties are segregated, access to the computer, the productions data library, the productions prog
operating system and associated utilities can be limited. Potential damage from the actions of any one
should be organized to achieve adequate segregation of duties.

Granting/Modifying User Access

Authorizing System Access

Authorizing User Access
Tasks (duties) to
be performed

Individual(s)
assigned to
perfrom the task

Granting/Modifying User Access

Authorizing User Access

Authorizing System Access

Application Modification

System Modification

Move Application Changes into

Production
Authorization of Production
Modification

Data Entry

System Administration

Quality Assurance

Network Security

Network Administration

Application Administration
Application Modification

System Modification

Move Application Changes into

Production

Authorization of Production
Modifications

Data Entry

System Administration

Quality Assurance

Network Security
ary, the productions programs, the programming documentation and the
m the actions of any one person is therefore reduced. The IT department

Network Administration

Application Administration
SUMMARY OF SEGREGATION OF DUTIES CONFLICTS

Cycle / Process Task Conflicting Task

Description of Compensating Control(s)