Segregation of Duties
Segregation of Duties (SoD) sounds quite complex but here is a simple example. You are at a store returning something without a receipt, the cashier needs a manager to authorize the transaction. SoD is the idea that no single person has complete control over the life a transaction (or action). If the cashier could issue the refund or credit without oversight, this would open the store up to potential fraud and theft.
In many small businesses one person authorizes a vendor to work, approves said bill, writes the check and then reconciles the bank statement at month end. Why? Because it seems costly and complicated to create policies and internal controls supporting SoD especially if the business has a very small workforce. Business owners work hard to grow their business and produce a profit, they should want to ensure internal controls are in place to protect it. According to a 2017 embezzlement survey by HISCOX, a specialty insurance company, 70% of check fraud cases occurred at companies with fewer than 100 employees. In 2018, HISCOX announced that the average embezzler usually has worked 8 years at the firm they are stealing from.
Now here are some simple ways that business owners can institute SoD principles:
1. Background checks on all pre-hires: Perform criminal background checks as part of the pre-hiring process. Note, it is also very important to make sure that the applicant has authorized this. Most background companies have a specified form or process for approval.
2. Cross-train employees: Cross-training gives the illusion that a co-worker is always checking others’ work. Even better, require mandatory vacations and have the cross-trained employee perform the duties of their absentee co-worker. If someone is thinking about committing fraud, knowing that the two checks they wrote to pay their own utility bill could be discovered while on a beach on vacation might make them think twice before committing fraud.
3. Outsource the process of reconciling the bank statements: Picture this, once a month an outside bookkeeper comes to your business to reconcile your bank statement. Not only is this an excellent practice, it also sends a message to the staff every month when that consultant walks in the door that someone else is watching the books. Sand Dollar Bookkeeping provides this type of service to clients regularly.
For more information on SoD or to have Sand Dollar Bookkeeping help your business better its controls and processes, please email email@example.com or call 239.823.3937.