Segregation of Duties
One of the primary elements (or components) of internal control is the control activity of segregation of duties which requires that one individual should not have the ability to perform multiple phases of a transaction.
When the work of one employee is checked by another, and when the responsibility for custody of assets is separate from the responsibility for maintaining the records relating to those assets, there is appropriate segregation of duties. This helps detect errors in a timely manner and deter improper activities; and at the same time, it should be devised to prompt operational efficiency and allow for effective communications. Segregation can be divided into three basic categories.
- Separation of the custody of assets from accounting.
- Separation of the authorization of transactions from the custody of related assets.
- Separation of duties within the accounting function.