Separation of Duties

What is “Separation of Duties?”

Separation of duties is the means by which no one person has sole control over the lifespan of a transaction.  Ideally, no one person should:

  • Initiate the transaction
  • Approve the transaction
  • Record the transaction
  • Reconcile the transaction
  • Handle the related asset
  • Review reports

There should be at least two sets of eyes on each transaction.

Why is it Important?

Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions.

All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person.  In addition, separation of duties is a deterrent to fraud because it requires collusion – working with another person – to perpetrate a fraudulent act.

What About Small Departments?

When separation of duties is not possible due to a small department size, compensating controls must be put in place.  Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties.

ABCs of Separation of Duties

In general, no one employee should have job functions in more than one of the following three categories of duties:

  1. Asset handling and disposition: Having physical access to University assets or being in a position to control where an asset is directed
    • Assets include cash, tickets and passes, PCards, supplies, equipment, books, vendor and payroll checks, and purchase orders
    • Directing an asset includes initiating a vendor or payroll payment in myUFL, setting up a new employee in the Human Resources Management System (HRMS), making an adjustment to a student account transaction, placing an order for supplies, distributing payroll checks, and specifying where supply orders are to be delivered
  2. Booking or recording transactions to the myUFL general ledger or subledger: Recording or posting a financial transaction to the myUFL general ledger
    • The recording of financial transactions in myUFL occurs when a vendor invoice, direct payment, or journal is approved
  3. Comparison or review of transactions or balances: Reconciling and reviewing transactions appearing in the myUFL general ledger for validity and reasonableness
    • Monthly reconciliation is required as a key internal control to ensure the accuracy of data in myUFL – the official accounting record of the university of Florida

 How Does it Look?

Consider the following in assigning duties to people involved in handling a financial transaction process:

  1. The preferred number of people that should be involved in handing a financial process is three of more – at this staffing level, satisfactory separation of duties can be attained fairly easily
  2. The minimum number of people who can successfully operate a financial process is two – at this staffing level, satisfactory separation of duties can be attained, but not without careful planning
    • For some processes, certain duties might have to be performed jointly by both staff members
  3. A person involved in more than one financial process should be assigned duties within the same duty category, such as asset handling, across the different processes. For example, people with asset handling duties in the cash handling process should be assigned only asset handling duties in other financial processes.

Note: An employee serving in a “back-up” role must be competent and have the same authority as the person normally performing the duty.

Example – Cash Handling

Responsibility Duty Category Ideal: 4 Person Good: 3 Person Minimal: 2 Person
Cash receiving (cashiering) and counting cash as part of the cash drawer closing process Asset handling Employee 1 Employee 1 Joint – Employees 1 and 2*
Deposit preparation and the recording of cash receipt on deposit records/logs Booking Employee 2 Employee 2 Joint – Employees 1 and 2*
Recording the deposit in myUFL Booking Employee 3 Employee 3 Initiation: Employee 1

Approval:

Employee 2
Making the cash deposit at the University Cashier’s Office Asset Handling Employee 1 Employee 1 Employee 1
Comparing cash deposits recorded in the general ledger to deposit amounts appearing on copies of departmental records/logs Comparison/Review Employee 4 Employee 3 Employee 2**

*Closing of cash drawer is performed jointly with both coworkers witnessing the count and certifying the deposit amount appearing on the department records/logs.  Employee 2 retains and secures the copy of the record/log for ledger review purposes.

**Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation

Example – Purchase

Responsibility Duty Category Ideal: 4 Person Good: 3 Person Minimal: 2 Person
Order initiation Asset handling Employee 1 Employee 1 Employee 1
Order approval Booking Employee 2 Employee 2 Employee 2
Confirmation of receipt of good Asset Handling Employee 3 Employee 1 Employee 1
Payment of invoice Booking Employee 2 Employee 2 Employee 1
Ledger review and certification Comparison/Review Employee 4 Employee 3 Employee 2**

**Ideally, someone other than employee 1 or 2 should review and certify the monthly reconciliation

Example – Billing and Receivables

Responsibility Duty Category Ideal: 4 Person Good: 3 Person Minimal: 2 Person
Review and approval of billing data included on bills Booking Employee 1 Employee 1 Employee 1
Billing adjustment issuance, including account credit issuance and bad debt balance write-off authorization Asset Handling Employee 2 Employee 2 Employee 2
Billing adjustment transaction ledger or billing system recording payment Booking Employee 3 Employee 1 Employee 1
Comparison of AR balance recorded in the general ledger to the total billings reflected in the billing system or records Comparison/Review Employee 4 Employee 3 Employee 2

Training

PRO303 – Internal Controls at UF

PST130 – Reconciliation for Tier 1

Resources

Internal Controls Checklist

Contacts

Finance Hub contact form

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