Segregation of duties (also called separation of duties) is an internal control that splits the key steps of a transaction among different people. The classic split separates four jobs: authorizing a transaction, handling the asset (cash, inventory, bank access), recording it in the books, and reviewing or reconciling it.
The GAO's internal control standards for federal agencies, known as the Green Book, describe it as dividing the duties of authorizing, processing, recording and reviewing transactions so that no one person controls all of them. The same idea applies to any business.
Why it matters
When one person controls a whole transaction, mistakes go unnoticed and fraud is easy. Splitting the steps means a second person sees every payment before money leaves.
Example
At a 25-person distributor (illustrative), the accounts payable clerk who adds new vendors to the accounting system should not also approve and release payments. If the team is too small to split those duties, the controller reviews a monthly list of new vendors, bank detail changes and payments, and signs off on it.
Common pitfalls
- Admin accounts that let one person do everything "temporarily".
- Vacation cover, where a single stand-in quietly inherits every duty.
- Managers approving their own expense reports or purchases.
- Reviews that are signed without anyone actually looking.
Small teams can rarely split everything. When they cannot, a documented review by someone independent (the owner, an outside accountant) is the usual compensating control.