Segregation of Duties Cornell University Division of Financial Services

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examples of segregation of duties

Take a proactive approach to access controls, data security policies and in particular, segregation of duties to restrict privileged access in Oracle ERP Cloud. Pathlock provides a robust, cross-application solution to managing SoD conflicts and violations. Finance, internal controls, audit, and application teams can rest assured that Pathlock is providing complete protection across their enterprise application landscape. When one person controls a process from start to finish, it can create a higher risk of error or fraud.

Today, SoD is implemented in various domains, such as accounting, finance, payroll, administration, etc. In politics, it becomes the separation of powers in democracies where the government is divided into a judiciary, an executive, and a legislature. It should be possible to demonstrate segregation of duties to an outside party. The post Security, Segregation of Duties and common examples appeared first on SafePaaS.

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Significant damage to your organization can result from errors or fraud in all three departments, and organizations failing to implement effective SOD policies in these areas do so at their peril. Segregation of duties is designed to prevent unilateral actions within an organization’s workflow, which can result in damaging events that would exceed the organization’s risk tolerance. In short, no one person or group should be given control over a process or asset where they have the unchecked power to overlook errors, falsify information (remember Enron?), or attempt theft. Each of the actors in the process executes activities, which apparently relate to different duties. For example, the accountant who receives a payment performs a series of checks against order details before sending the invoice to the manager for approval, possibly suspending the invoice until any discrepancy has been fixed. Such checking activity may be viewed as an authorization duty or a verification/control duty.

It’s an important principle for establishing strong internal controls and promoting a secure operating environment. Segregation of duties is important for quality control, as there are many errors that can be caught by the business while conducting a review process. However, the segregation of duties does not guarantee that these types of unintentional errors will not happen. This is because by instituting this process, there are multiple people responsible for moving the entire job function through its process. In all of these scenarios, the odds of a negative outcome for your business rise, thereby increasing your organization’s risk level.

Separation of duties

Regular monitoring, auditing, and employee awareness programs are also necessary to ensure the effectiveness of segregation of duties and address any potential vulnerabilities or issues that may arise. Segregation of duties is critical to effective internal control because it reduces the risk of mistakes and inappropriate actions. The segregation of duties is more difficult to accomplish in a smaller organization, where there are too few people to effectively shift tasks to different people.

The reason that segregation of duties is so widely used as part of risk management strategies is that it is effective. Segregation of duties has been proven time and again to prevent the abuse of control and any resulting nefarious activity by a single person or by collusion amongst a group. Segregation of duties is part of a system of essential controls that help prevent and detect the existence of fraud and error in any type of organization.


In enterprises, process activities are often described by means of some procedure or in a diagram in some standard notation, such as a business process model and notation. Often, these descriptions are at a level of detail that does not immediately match with duties as previously defined. This may generate confusion when checking to see if there has been some kind of conflict in the attribution of duties. For example, figure 3 shows a schematic example of a fictitious accounts receivable process.

In some cases, strict segregation of duties can create a situation where there are no backup or alternate individuals available to perform critical tasks. If a designated person is unavailable or leaves the organization, it may cause delays or disruptions in the execution of essential processes. Implementing strict segregation of duties can sometimes lead to delays in critical processes or decision-making. If multiple individuals are required to authorize or perform certain tasks, it may introduce bottlenecks or make it challenging to expedite urgent activities. A violation of segregation of duties is when an employee has control over more steps in a business function than they should, and it opens the company to unintentional errors or theft. An example would be if an employee can modify and delete information within a database system without needing any type of managerial approval.

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It’s because you are dividing a task into multiple sub-tasks, each performed by a suitable, specialized individual with better accuracy and speed. It involves fraudulent activities like cheque tampering, cash skimming, asset misappropriation, deductible business expenses document forgery, falsified receipts, invoices, accounting record errors, and more. In fact, SoD is a vital element of risk management and enterprise compliance with regulations like the 2002 Sarbanes-Oxley Act (SOX).

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Still, SoD governance may benefit from introducing further controls to reduce risk to acceptable levels. For example, third-party audits by a separate function (e.g., internal audit) or an external entity (e.g., external audit) may be beneficial. In this case, a function-level or company-level SoD may be used, for example, to assess effectiveness of individual-level SoD. This is a secondary level of controls that provides assurance about the effectiveness of existing SoD controls. SoD violations can happen if an organization’s employee exploits their assigned role and intentionally accesses information or performs a prohibited activity.

  • Make sure to assess your processes, identify critical areas, and implement appropriate controls to mitigate these risks.
  • The first is the process of receiving payments, making the bank deposit, and reconciling the bank balance.
  • Then, the actual permissions provided to users on applications and systems (from role mining) was compared to the intended use of IT services (from procedures and diagrams).
  • On the top-down side of the approach, the organization was analyzed to determine what the roles were for every department, function or office involved.
  • Smaller companies may not have access to these expensive ERP software packages; however, they can still make a segregation matrix.

The next category would be duty (Custody, Authorization, Record-keeping, Reconciliation) followed by procedure (Create requisition, Authorize requisition, Create order, Authorize order) and role (Role 1, Role 2, Role 3, Role 4). SoD is a control and, as such, should be viewed within the frame of risk management activities. This key element must be kept in mind when assessing potential conflicts and designing rules. In some cases, segregation is effective even when some conflict is apparently in place. An effective SoD mitigates all risk deriving from the risk scenarios presented in figure 2.

However, they are most commonly generated automatically using enterprise resource planning (ERP) software. In such cases, SoD rules may be enforced by a proper configuration of rules within identity management tools. Such rules can detect a conflicting assignment in the creation or modification phase and report such violations. A more complex and flexible set of rules is needed if dynamic RBAC is to be applied. In summary, the scope in which to look for SoD conflicts can be defined by the assets that are involved and by a set of processes that operates on them. When the annual physical inventory came, due within the same annual period, the general manager mandated that the system inventory valuations must equal book inventory valuations at the beginning of each monthly period.

examples of segregation of duties

Segregating duties is not an ‘all or nothing concept’ – you can segregate responsibilities as much as you can and then fill in any gaps with oversight controls. For example, in your HR department, you might want to list tasks like hiring and onboarding employees, creating benefits and compensation, clearing payments, recordkeeping, etc. Similarly, in the accounts department, you can list tasks like product delivery confirmation, reviewing invoices, signing checks, paying invoices, etc.

Understanding Segregation of Duties

Giving one person or group too much control within your business’s processes opens the door for unchecked errors and possible fraud–both of which can result in financial loss, reputational damage, and compliance violations. Segregation of Duties is an essential internal control in any organisation designed to prevent fraud and error. This internal control ensures that more than one person is required to complete the various tasks required to complete a business process. While segregation of duties is designed to prevent a single individual from executing malicious actions, it does not entirely eliminate the risk of collusion between individuals with separate responsibilities. If multiple individuals conspire to bypass controls, the effectiveness of segregation can be compromised.

Similarly, authorization of Journal Entries cannot be carried out by the same person who posts journal entries from this report. This simple model grows more complex when the “Push to Production” or release management phase comes into play. Risks for successful ventures, risks of losses from fraud or error, market risks and legal risks all have different “preference curves”’ in any given organization. Once you have detected all the SoD conflicts, start assigning tasks and sub-tasks to employees, leveraging the concept of segregation of duties.

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