Procedure No. 600.6

Objective

To implement segregation of duties within all key business processes.

Definition

Per the AICPA: “Segregation of Duties (SOD) is a basic building block of sustainable risk management and internal controls for a business. The principle of SOD is based on shared responsibilities of a key process that disperses the critical functions of that process to more than one person or department. Without this separation in key processes, fraud and error risks are far less manageable.” 

Segregation of duties is an essential internal control intended to prevent error and fraud by ensuring that at least two individuals are responsible for the separate parts of any task. Proper segregation of duties reduces the risk of errors and inappropriate actions.

Senior administration and all individuals responsible for assignment and supervision of employees that carry out fiscal activities, budget and implementation of Internal Controls must ensure there is adequate segregation of duties within their areas of responsibilities.

Where segregation of duties may not be possible (for example in the case of a small department), then mitigating controls may need to be instituted (such as audit trails, reconciliation, exception reports and/or managerial/ separate departmental reviews).

Separation of Responsibilities

• Authorizing/ Approving
  • A separate person authorizes the transaction
• Recording
  • A separate person records the transaction
• Reconciling/ Control Activity
  • A separate person reconciles the transaction
• Custodian
  • A separate person has custody of the asset

If internal control is to be effective, there needs to be an adequate division of responsibilities among staff who perform accounting procedures or control activities and those who handle assets. In general, business processes should be designed so that the work of one individual is either independent, or serves to supplement or check on, the work of another.

Segregation of Duties - Financial Management

Key segregation of duties considerations:                                                        

• Budgeting
  • Finance staff who establish general ledger accounts and enter the line item budgets are separate from the departmental budget managers.
• Cash Management
  • Staff responsible for reconciling cash to underlying records must not have created the records being reconciled, and not have had access to the cash.
• Purchasing
  • Requisitions require a minimum of three approvals (two departmental and one Purchasing) prior to becoming a purchase order. Approvals hierarchy established in ERP system.
• Accounts Payable
  • Three-way match required for payment (purchase order, receiving, voucher). Staff in Purchasing, Receiving and Accounts Payable are all separate individuals.
  • Checks must be initialed by a Board of Trustees’ approved signatory, or hand signed by two signatories if meet designated dollar amount. Colleague check printing rules established for signature printing.  Signature plate maintained in the safe in Bursar Office.
• Personnel and Payroll
  • Human Resources and Payroll functions and staff are separated and ERP access separated by function. Changes to an employee’s appointment affecting their pay authorized by approved Assignment Form or approved substitute. Appointment changes are entered by Human Resources and reconciled by Payroll.  Hourly employee time input approved by respective supervisor.
• Asset Management
  • Asset inventory records kept by independent Receiving staff. Central Receiving utilized.
• Financial Reporting
  • Reporting prepared by Finance department. Reviewed by grant administrator.
• Management Information System
  • Access to ERP system administered by ITS staff upon request of respective director and reviewed by ERP module administrator.

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