Internal control principle that divides authorization, recordkeeping, custody, and review duties so one person cannot control an entire risky transaction flow.
Segregation of duties is an internal control principle that splits key responsibilities across different people or teams so no single person can authorize, record, control, and conceal the same transaction.
When one person controls too much of a transaction flow, errors and fraud become easier to create and harder to detect. Segregation of duties creates built-in checks that improve reporting reliability, asset protection, and accountability.
Good segregation of duties starts by identifying the risky stages in a process. In accounting, the highest-risk combinations usually involve authorization, custody of cash or assets, recordkeeping, and review. The goal is not to add bureaucracy for its own sake. It is to separate the steps that would let one person create a false transaction and hide it in the records.
flowchart LR
A["Create or request transaction"] --> B["Authorize transaction"]
B --> C["Record in books"]
C --> D["Handle cash or asset"]
D --> E["Review and reconcile"]
classDef good fill:#eef7ff,stroke:#1f6feb,color:#0f172a;
class A,B,C,D,E good;
| Duty Type | Why It Should Be Separate | Example |
|---|---|---|
| Authorization | Prevents unauthorized spending or policy override | Manager approves vendor invoice |
| Recordkeeping | Keeps the books independent from asset custody | A/P clerk records payable |
| Custody | Prevents the recordkeeper from controlling the asset too | Treasury releases payment |
| Review | Adds a check that the earlier steps were completed properly | Controller reviews reconciliation |
A vendor-payment process is stronger when the work is divided this way:
| Step | Assigned Role | Control Benefit |
|---|---|---|
| Add or change vendor | Vendor master or procurement staff | Reduces fake-vendor risk |
| Approve invoice | Department manager | Confirms the purchase is valid |
| Record payable | Accounts payable staff | Separates approval from recordkeeping |
| Release payment | Treasury or designated finance approver | Separates recordkeeping from cash custody |
| Review cleared items | Controller or reviewer | Confirms the process worked as intended |
Segregation of duties does not mean every task must be done by a different person in every organization. Small businesses often use compensating controls, such as owner review or tighter reconciliations, when full segregation is not practical. It is also broader than fraud prevention alone because it helps catch ordinary processing mistakes.