Segregation of Duties

Segregation of duties involves assigning different employees to perform functions such that an employee acting alone is prevented from committing an error or concealing a fraud in the normal course of his or her duties.

1) Four types of functional responsibilities should be segregated:

a) The authority to execute transactions.

b) Recordkeeping of the transaction.

c) Custody of the assets affected by the transactions.

d) Periodic reconciliation of the existing assets to recorded amounts.

2) EXAMPLE in the purchases-payables cycle:

a) The authority to execute transactions is vested in the purchasing department, not, for  treasurer.

b) Record keeping is done by accounts payable, not purchasing.

c) Custody of the assets involved is vested in the warehouse, not inventory control.

d) Periodic reconciliation of the existing assets to recorded amounts is performed by inventory control, not the warehouse.

3) EXAMPLE in the sales-receivables cycle:

a) The authority to execute transactions is vested in the sales department, not, for treasurer.

b) Recordkeeping is done by accounts receivable, not sales.

c) Custody of the assets involved is vested in the warehouse (in the case of the merchandise) and the treasurer (in the case of the cash).

d) Periodic reconciliation of the existing assets to recorded am ounts is performed by the general ledger accounting group, not the treasurer.

4) EXAMPLE in the payroll cycle:

a) The authority to execute transactions is vested in the human resources departm ent, which authorizes the hiring and termination of employees and their rates of pay and deductions.

b) Recordkeeping is done by the payroll department.

c) Custody of the assets involved is vested in the treasurer.

d) Periodic reconciliation of the existing assets to recorded amounts is performed by the general ledger accounting group.

5) The following memory aid is for the functions that should be kept separate for proper segregation of duties:

A-  Authorization

R- Recordkeeping

C -Custody

R -Reconciliation

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About PAM Academy Founder

Newbie Mentor and one of the influential author in the Philippines setting. His also the founder of PAM Academy and Developer of PAM PSE TRACKER application.
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