Importance of Segregation of Duties
“Segregation of Duties” is an internal control activity that is very important for achieving a strong internal control environment and for preserving the integrity of RIT, clubs and student organizations. There should be a proper segregation of duties in the cash handling function so that the collection, deposit, and reconciliation of funds to source documentation are performed by different members.
The underlying concept of segregation of duties is that no club or student organization member should be in a position to both perpetrate and to conceal errors or fraud in the normal course of their club or student organization duties.
The incompatible duties to be segregated are:
- Custody of the assets
- Authorization or approval of related transactions affecting those assets
- Recording or reporting of related transactions
The same person should not be responsible for more than one of these functions. Segregation of duties is effective because in order for an individual to commit fraud or intentionally conceal an error, another individual in the process would need to be recruited (i.e., collusion) as a conspirator, which is risky for the perpetrator as they might be discovered by an honest club or student organization member.
Some examples of functions that need to be segregated include:
Individuals responsible for collecting cash (“custody”) should not also prepare the deposit into the Campus Life Drop Box (“recording”), and reconcile the club or student organization’s budget (“reconciliation”).
Individuals responsible for placing orders (“authorization”) (i.e., transacting Visa purchases, Invoice Payment Forms, Purchase Orders, etc.) should not also be reconciling those transactions in the club or student organization’s budget (“reconciliation”).