Segregation of Duties

tigger37

Hi All,

What would you see as some weaknesses in a poor segregation of duties set up? For example, in about a month due to staff redundancies and eventual closing of our site, I will be doing both payables and receivables, banking plus the reconciliations not to mention posting items to the GL. I will be making payments, but it has to be approved by someone offsite. What would you suggest as weaknesses in this setup?

blobbyh

Depends on the nature of your business but in a small, informal and not very well organised company, straight off the top of my head you could:

Set yourself up as a fake supplier and pay yourself, especially if there is no P/O system in place.

Overwrite existing supplier bank details with your own while directly disupting the debt with them to keep it - and them - in limbo. Your employer will think the debt is paid while the supplier will spin round in circles.

Issue credit notes to complicit clients and agree cash payments directly to you instead, i.e. you write their debt off in exchange for them paying you a fraction of the original sale.

mark130273

blobbyh wrote: »

Depends on the nature of your business but in a small, informal and not very well organised company, straight off the top of my head you could:

Set yourself up as a fake supplier and pay yourself, especially if there is no P/O system in place.

Overwrite existing supplier bank details with your own while directly disupting the debt with them to keep it - and them - in limbo. Your employer will think the debt is paid while the supplier will spin round in circles.

Issue credit notes to complicit clients and agree cash payments directly to you instead, i.e. you write their debt off in exchange for them paying you a fraction of the original sale.

sounds like you know a BIT too much about this !!!

tigger37

segregation of duties

wow - I found quite a few of them...
our customer supervisor can create/amend both customer and vendor details as well as create sales orders, sales invoices and sales credit notes
our financial controller can do depreciation calculations as well as a depreciation adjustment
and I can do Payables as well as receivables, open/close periods, all banking and banking recs, and all GL recs.

Sound like a mountain?

blobbyh

But how are those implicitly weaknesses? In many small companies, there may only be one person who does everything accounts related but that doesn't imply the system will fail or dishonesty leading to personal gain. I may have read it wrong but your original post implied segregation of duties that may lead to fraud or disaster, however your own examples won't necessarily lead to either and are just things many people do - including me as I do all of the above - in their regular jobs.

tigger37

Segregation of Duties

From what I have read, all of these could lead to collussion with the outside or with another employee to commit fraud. For example, if the supervisor can add details to a vendor, then what stops them from later on changing the bank details to their own or another employees if they were in collusion with them? Or could not the COntroller do a depreciation calculation wrongly and mis-appropriate the assets? I would think those were weaknesses wouldn't they?

blobbyh

And I also gave several examples in my first post. Don't overlook the sales ledger clerk: he can change the bank details on a client invoice to his own bank account and receive the payment! Of course, he'll be caught eventually but then they usually are. Writing off an asset for personal use is not one I've seen but yep, perfectly plausible.

And all the examples can lead to fraud which is why we take steps to try and prevent them. Where we can't prevent them we try and control them and where we can't control them, at least take steps so we can detect them. By their nature, most frauds are discovered after the fact anyway but at least they usually can be found and the culprit dealt with as appropriate.

It's very hard to completely stop fraud taking place as there's an element of trust placed with every employee and the higher the trust, the greater the access to commit fraud.