SEPARATION OF DUTIES - 7280

(New: 08/2020)

(Revised and Renumbered from 8080 08/2020)

 

Separation of duties, also known as segregation of duties, is a fundamental building block of sustainable risk management and an essential component of internal control for agencies/departments. The principle of separation of duties involves assigning different tasks of a process to more than one individual such that no one employee can solely initiate, record, authorize, and reconcile a transaction without the intervention of another. Well designed and implemented separation of duties reduces the risk of fraud and errors, and is essential for safeguarding state assets.

 

The State Leadership Accountability Act (Government Code sections 13400–13407 and SAM sections 20060-20080) requires that the head of each agency/department establishes and maintains an effective system of internal control within their agencies/departments. SAM section 20060 provides additional guidance on internal controls.

 

Separation of duties, an integral part of internal control, should be clearly defined, assigned, and documented. When designing separation of duties, agency/department heads must ensure that generally no one person will be involved in more than one of the functions listed below for a given transaction. For the purpose of section, members of the same family (domestic partners, children, husband, wife, brother, sister, or individuals living in the same household) are considered one person.

 

• Authorization – the process of reviewing and approving transactions or operations
• Custody of assets – the physical control or access to state assets such as cash, checks, supplies and equipment
• Recording transactions – the process of creating and maintaining records of transactions
• Reconciliations – the process of verifying the accuracy of transactions posted in the accounting records to ensure that transactions are valid, accurate and complete

 

The size and structure of an agency/department unit may impact the extent to which separation of duties is designed and implemented. Agency/department heads should determine the most effective way to implement separation of duties taking the level of risk associated with transactions into consideration. The cost of controls should not exceed their benefits. When separation of duties cannot be effectively implemented due to small size and/or limited staffing, management should find alternatives such as:

• Increase the extent of supervisory review and oversight functions.
• Rotate duties within the agency/department.
• Use employees from a different unit other than accounting to assist in appropriate tasks while ensuring there is sufficient separation in the functions performed by these areas.
• Use an outside service such as Department of General Services, Office of Fiscal Services.
• Use a larger department within the same agency to perform functions to avoid functional conflicts.

Below are examples of incompatible duties. No one person will perform more than one of the following types of duties:

 

• Receiving and depositing remittances.
• Authorizing disbursement.
• This person will not distribute or route checks for mailing.
• Preparing checks.
• This person is to maintain a daily check log. For checks that are signed by a check signing machine, follow SAM section 8081.
• This person will not distribute or route checks for mailing.
• Operating a check signing machine.
• Reconciling check signing count with the checks*.
• This person should have appropriate authority and responsibility.
• Reconciling bank accounts*
• This person can keep original documents, such as general and trust cash receipts, general and trust cash disbursement, revolving fund cash, and invoices.
• Initiating, or preparing invoices for billing
• Reconciling transactions

 

* The employee will not have access to or control the blank check stock.