Separation of duties (SoD)

Separation of duties definition

Separation of duties (SoD), also referred to as segregation of duties, is the principle that no user should be given total control over sensitive systems, processes, or activities. For example, one person is not able to complete a task without another person who acts as a check, or access can be limited to a set number of times. Separation of duties is intended to prevent security compromises, such as errors, fraud, misuse of information, sabotage, and theft. 

Enforcement of separation of duties can be static or dynamic. 

1. Static enforcement
   The same person cannot execute roles that have a conflict. For instance, the person who authorizes payment by check should not be the one who electronically signs the check. 
2. Dynamic enforcement
   Control is handled in real-time. Users require approval by an authorized person to complete a task. 

Separation of duties breaks tasks into four categories—authorization, custody, reconciliation, and recordkeeping. Following the protocols, different people perform each of the following tasks as part of the system of checks and balances.  

1. Authorization
   The review and approval of transactions or operations
2. Custody of assets
   Control over access to physical and digital assets and systems
3. Reconciliations
   The verification of accuracy, completeness, and validity of transactions or operations
4. Recording transactions
   The creation and maintenance of records related to transactions or operations 

Importance of separation of duties

Important organizational functions for separation of duties include: 

• Accounting and finance 
• Cybersecurity 
• Information technology 
• Other areas that can have a critical impact on the organization 

Implementing separation of duties across sensitive functions helps minimize risks related to insider threats, such as: 

• Falsifying financial records to meet earnings forecasts 
• Performing corporate espionage 
• Stealing money from the organization   

Compliance is another reason to implement separation of duties. In the United States, the Sarbanes-Oxley Act of 2002 (SOX) specifies the need for the separation of duties. The objective is to safeguard against accounting fraud where financial statements are falsified.  

With SOX, audit committees and senior executives are accountable for the accuracy of financial statements. The separation of duties is required to provide effective internal control systems for financial reporting to ensure veracity. 

Other reasons that separation of duties is important include the following. 

Accountability 
A separation of duties program promotes accountability and transparency within the organization by assigning responsibilities to specific teams and individuals. In addition to their responsibilities, they are accountable for oversight of tangential functions and activities. 

Attention to detail 
No one likes to be found in error, and separation of duties provides oversight that identifies errors. Because of the checks and balances provided, organizations see a culture develop that demonstrates attention to detail driven by a desire to avoid errors, which benefits all aspects of the enterprise.   

Error prevention 
By assigning different tasks and responsibilities to individuals or teams, separation of duties helps organizations identify errors in a timely fashion. This helps prevent time lost with corrections at best and legal issues and compliance violations at worst.   

Fraud prevention 
The separation of duties, such as authorization, recording, and custody, provides a system of checks and balances that significantly reduces the risk of fraud. Because no one person or team has complete control over sensitive processes or functions, opportunities for manipulation, embezzlement, or other types of financial misconduct are eliminated. 

Risks associated with separation of duties

Separation of duties delivers many benefits, but there are several challenges, including the following: 

• Complicates business processes 
• Creates conflicts between security and efficiency 
• Gives the false impression of reducing errors 
• Impacts employee satisfaction, engagement, and retention  
• Increases staffing requirements and costs 
• Presents opportunities for collusion  
• Reduces operational productivity 

Best practices for separation of duties 

Assess risk levels when establishing SoD

Separation of duties will differ depending on the organizations and departments. However, when determining the best approach, all organizations should create and implement policies based on associated risk levels.   

Be able to demonstrate separation of duties

To confirm efficacy, the documentation of processes to be used for separation of duties should be demonstrable to an outside party.  

Conduct employee training to share the importance of SoD

Take time to develop and schedule employee training that explains the hows and whys of separation of duties. This enables program efficacy improvements and gaining the support of employees.   

Define and document the responsibilities for separation of duties

Each step of the separation of duties processes, roles, and responsibilities should be clearly defined and documented. This should include who, whether a specific person or a role, is responsible for the initiation, submissions, authorizations, reviews, and audits of the activities that fall under SoD.   

Monitor SoD for compliance

For many organizations, separation of duties is a compliance requirement or part of compliance programs. Organizations should regularly review the program to ensure that related controls and processes meet evolving requirements.   

Evaluate separation of duties efforts to identify opportunities for improvement

Solicit feedback from users and auditors about the SoD program to proactively identify areas that can be optimized and improved to streamline operations and reduce risk. 

Conduct regular reviews and maintain SoD processes

Controls should be defined and implemented to conduct ongoing monitoring and regular reviews of how separation of duties is being executed to ensure that processes are not impeding operational efficiencies and to audit for efficacy. This should include reporting mechanisms to document results. 

SoD as an addition to risk management portfolios

Including separation of duties in risk management programs can be an easy and low-tech way to increase efficacy. Separation of duties across an organization (i.e., covering everything from operations and development to finance and IT security) can reduce overall risk. 

Separation of duties implements checks and balances that help prevent issues that can negatively affect an organization, resulting in financial losses, regulatory penalties, and irreparable brand damage. It also helps minimize errors, prevent fraud, and limit the scope of damage that an incident can cause. 

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