What is Segregation of Duties?
Segregation of duties, in a nutshell, is a concept where a company places controls on processes when more than one person is responsible for completing a task. A Segregation of Duties control has the primary purpose of strengthening internal processes by preventing potential fraud, errors or unwanted scenarios. It’s also not a mistake to say that the Segregation of Duties represents the “separation of power” for the various departments, such as finance, procurement, IT, quality control and others.
Creating a Segregation of Duties manual is an essential concept when it comes to aligning your team around your internal controls. The diligence happens when you divide all the tasks, responsibilities, and privileges associated with a particular process among multiple users into small tasks. From there you might need to have a system in place to document all of the process handoffs. Sometimes you might even need to prove a chain of custody when it comes to controls associated with data. Other examples may be like when you required for a two signatures on checks over a certain dollar amount.
Segregation of Duties Practical Application in general business and information systems
In both business and information systems, Segregation of Duties helps to reduce the potential damages, which can be caused by the actions of only one person. It almost comes without saying that some sensitive and critical responsibilities should not be concentrated in one position. However, the Segregation of Duty principle isn’t a standard, but rather a general guideline implying which particular processes should be segregated and followed with an appropriate set of controls.
Depending on an organization’s structure and size, the practical application of Segregation of Duties may vary. In a situation when it’s not possible to clearly segregate the targeted duties, the set of compensating controls should be introduced. On the other side, if a single person or department can’t avoid making errors or facing irregularities while conducting their day-to-day activities, then this is an obvious case that the assigned Segregation of Duties controls is incompatible. That’s why the following control mechanisms should be introduced to ensure the successful:
- Segregation of duties means that no single person should be in a position to cause fraudulent, error-related or detrimental consequences without detection.
- Strict internal control requires that the same person or department is responsible for the execution of only one particular role.
- The Segregation of Duties process needs to ensure that one’s authorization rights are in line with the specially assigned role in the organization.
There should be more than one authentication method applied, such as the use of passwords, keys, or biometrical characteristics.