Segregation of Duties

Author’s Business Listing

Woman opening the door of a store as part of her duties

Business owners never want to hear the ‘F’ word. And although you never want to hear that word either, I am talking about “fraud”. In every business it is important to ensure there are internal controls in place to safeguard the assets of the company. One way to strengthen internal controls is to ensure there is a segregation of certain duties.

There are three main functions that should be segregated to help protect the organization from fraud. These include authorization of a transaction, recording of a transaction, and custody of the assets as part of the transaction. For a small business with limited resources, this can be difficult to achieve but it is possible.

A good starting point is to list everyone in your organization and document their title or position in the company, followed by all the activities/duties everyone performs. It is a good exercise to ask everyone to document over a month all the duties they are performing during that month. Most major tasks will be obvious but there are usually other tasks that individuals perform outside of their main duties, and it is important for them to identify these as well. Depending on the nature of the business, this process may take a little longer than a month. Once you have the list, break down the duties performed for everyone into three categories:

Custody/Control of the Assets

Does the individual have access to the company’s cash, inventory, equipment? In what capacity?


What system do they have access to, if any? Does the individual have full or limited access to the accounting system or another system such as payroll or inventory.


Level of authority to approve or make transactions on behalf of the company. Consider purchases such as inventory, capital assets, office supplies, hiring or terminations, operating decisions, etc.

Once this exercise is completed, you will have a detailed organizational chart that will clearly outline the hierarchy, relationships, and roles within the organization. These insights will assist employees to understand who they are reporting to, ensure that management is properly delegating tasks and responsibilities to ensure segregation of duties is being achieved.

I recommend you review with your accountant as they can assist in identifying any weaknesses in your internal controls and opportunities to improve segregation of duties and reduce the risk of fraud, which could come at a higher cost.

Nicole Stewart, CPA, CA, LPA
MDP LLP Chartered Professional Accountants

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