How to Achieve Segregation of Duties with Limited Resources

July 2016 | Article

Many nonprofits are considering how to make do with increasingly limited resources and, as a result, struggle to have sufficient internal controls. With pressures to cut costs, internal control and specifically segregation of duties suffers.

The concept of segregation of duties is quite simple – having more than one person required to complete a task or process. In other words, more than one individual should be responsible for initiating, approving and recording transactions. Simply allowing one person to handle all of the financial and accounting duties creates an opportunity for fraud that may prove too tempting to resist.

Proper segregation of duties is one of the essential components necessary for strong internal controls. A nonprofit does not have to employ a slew of people in its accounting department to achieve appropriate segregation.  Remember that several individuals within the organization might be able to assist in achieving proper segregation of duties. Many times it just takes a bit of creativity and thought to properly assign duties.

As an example, accounting duties can be divided between two people as follows:

Accountant: Executive Director:
  • Write disbursement checks
  • Reconcile bank statement
  • Record receipt and disbursement data into general ledger
  • Process payroll
  • Process vendor invoices
  • Disburse petty cash
  • Record adjustments to general ledger
  • Receive bank statement, reviewing in detail all recorded transactions
  • Sign and mail checks
  • Make bank deposits
  • Approve payroll and distribute checks
  • Review bank reconciliations
  • Approve vendor invoices for payment
  • Review detailed general ledger activity


Adding a third person is even better:

Accountant: Executive Director: Board Tresurer:
  • Write disbursement checks
  • Reconcile bank statement
  • Record receipt and disbursement data into general ledger
  • Process payroll
  • Process vendor invoices
  • Disburse petty cash
  • Record adjustments to general ledger
  • Sign and mail checks
  • Make bank deposits
  • Approve payroll and distribute checks
  • Approve vendor invoices for payment
  • Receive bank statement, reviewing in detail all recorded transactions
  • Review bank reconciliations
  • Review detailed general ledger activity


And when you have four people between which to divide tasks:

Accountant: Administrative: Executive Director: Board Tresurer:
  • Write disbursement checks
  • Record receipt and disbursement data into general ledger
  • Process payroll
  • Record adjustments to general ledger
  • Reconcile petty cash
  • Open mail and log cash
  • Process vendor invoices
  • Disburse petty cash
  • Reconcile bank statement
  • Sign and mail checks
  • Make bank deposits
  • Approve payroll and distribute checks
  • Approve vendor invoices for payment
  • Receive bank statement, reviewing in detail all recorded transactions
  • Review bank reconciliations
  • Review detailed general ledger activity


It is critical that individuals taking on new responsibilities are properly trained and equally important for them to understand why they are performing these functions.

Finally - it’s important to remember that, over time, job functions can easily migrate back to the accountant without the Board being aware that segregation of duties no longer exists for all critical tasks. A review of task assignments should be conducted at least annually to determine if allocation continues to be appropriate.

Let us know how we can be of assistance!

Stay current on your favorite topics

SUBSCRIBE

Learn More

See what more we can bring to organizations just like yours.

Nonprofit

Take a deeper dive into this Insight’s subject matter.

Fixed Asset Services