What is Segregation of Duties?

People in Business Attire

Segregation of Duties (SoD) is a control activity where an activity or set of activities are divided among several people in order to reduce the risk of fraud. Segregation of Duties is built around the idea that a critical or sensitive task be split from one person, thus reducing the likelihood of intentional fraud. Segregation of Duties represents a key internal control to help ensure no single person has too much control over a specific business operation. Segregation of duties is an essential component of a properly function internal controls environment within an organization.

There are a number of objectives Segregation of Duties (SoD) helps accomplish:

  • Improve accuracy and completeness of financial data, thus improving financial reporting for executive management
  • Satisfy increased customer and stakeholder demands for sound, reliable internal controls
  • Comply with industry regulatory requirements including the Sarbanes-Oxley legislation
  • Align the organization with common best practices
  • Give company stakeholders a level of confidence that financial statements are free from misstatement
  • Improve enterprise-wide internal controls structure
  • Mitigate the risk of intentional fraud across the enterprise

Segregation of Duties (SoD) segregates the following four general categories of duties:

  • Authorization of Operations – The process of reviewing and approving a specific operation
  • Handling of Assets – Having custody over to a particular physical asset
  • Record Keeping – The ability to create and maintain records of operations and transactions
  • Reconciliation – Verify the proper processing and recording of transactions to help provide assurance that all transactional data are authorized, recorded timely, and valid
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