What Are The Risks In Not Having Segregation Of Duties In An Accounting Department?

The risks of a one-man shop

It’s astonishing how so many companies put their accounting and bookkeeping needs in the hands of one individual. Given all the information we have about fraud in the accounting department you would think business owners would better understand the value of segregation of duties. In order to safeguard one of your biggest assets, your money, you should create systems and internal controls in your accounting department to protect you from fraud and theft.

Segregation is more cost effective

Do you have your data entry person trying to play Controller or CFO?  Or do you have your high-level finance and accounting person doing data entry? It’s just not a good business practice or a cost effective way to have either person trying to do it all, nor do they enjoy doing all of these tasks.

Matching the appropriate person with what they do best creates efficiency and saves valuable time and money. This also includes, you, the owner. By freeing you up to do what you do best, it allows for your business to grow. For mid-size and growing companies, at minimum, we recommend you have a Bookkeeper, Accounting Manager and Controller. For larger companies, we recommend a Bookkeeper, Accounting Manager, Controller and CFO.

The best practice of segregation of duties is to create an approval function. This equates to having someone initial and approve invoices that are not recurring each month, having someone review payroll, bank and credit card reconciliations, the check writing function and other tasks that should be double-checked for accuracy. For example, a bookkeeper might enter all the data entry and payroll into the accounting software, but a Controller would review their work, initial and approve the invoices they input and also ensure the reconciliations were done accurately. The biggest benefit is this function greatly eliminates fraud or theft. When you have just one person, it is impossible to have an approval function, unless the CEO themselves feel this is a task they have time for. This is usually not an ideal situation for the CEO, because their time is better spent managing the business.

An important tool to implement for every business is a month-end close checklist.  This describes who is responsible for each accounting task and who should be the reviewer.  If you would like an example of the checklist please email us at info@probackoffice.com or call 858.622.1681.

Finally, it is important to have someone that can take financials in a finished format and explain the numbers to the business owner. This person, usually a CFO or Controller, will analyze the numbers, look for trends, and provide valuable insight to help the company grow profitably.

Filling in the gaps and becoming a part of your trusted team

After you have accomplished segregation of duties the next focus should be on streamlining activities to be as effective and cost efficient as possible.

For our clients, we create a comprehensive and flexible, personalized approach by providing them with all the resources they need, from the data entry role to the CFO. Pro Back Office not only knows how to assign tasks appropriately, but also has the superstar consultants that can fill in the missing gaps by focusing on the tasks needed to get accurate and timely financials.