What is Segregation of Duties (SoD)?
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- By Bree Ann Russ
- Published: Sep 04, 2023
- Last Updated: Sep 12, 2023
Far too many businesses today experience issues with fraud or costly mistakes. Learning to prevent these issues makes your business look more professional and stops preventable financial losses from occurring. The segregation of duties meaning is a business methodology that includes multiple people in essential processes in a company. Segregation of duties is especially important for tasks that involve handling money or important information. Without splitting those tasks up between multiple people, it's more likely that instances of bank account fraud or serious mistakes will occur.
The Importance of SoD
SoD stands for segregation of duties, and it's a powerful business method that protects businesses from corruption and security risks. When you prevent one individual from having access to too many parts of a business process, you gain greater control over the separate assets. Enacting a policy that breaks apart your company keeps more people accountable for everything that happens within the company. When there are more people checking and verifying different parts of a business process, it's less likely there will be serious errors occurring for very long. This is important for a business to succeed over the long term.
SoD can be difficult to implement properly, so it's vital to hire an experienced pro to help oversee the changes you make in your company. Work with experts who understand the potential issues when restructuring your business and how roles and procedures are structured.
SoD Implementation Strategies
To effectively keep duties separated in your business, you need policies in place that support that. The main benefit of the separation of duties or segregation of duties policy is to prevent fraud and significant mistakes. To leverage those benefits as much as possible, implement policies that impact situations where fraud or clerical errors are most common in your business. Normally that's where money is handled. Have two or more people handle any payments or money transfers your business takes care of. Implement your payment strategies so that the next person in a chain checks the previous person so that everyone is accountable and there are several people working to prevent errors and fraud.
To successfully implement SoD, you must identify the vulnerable points in your business. Identify where your finances are at risk when your employees are working with important information and when high security and accountability are essential. Work in strict segregation of duties practices in those areas of your business. Implement specific rules, and bake the practices into the jobs you assign to employees as well. When you take steps to ensure that segregation of duties is guaranteed in your business, you'll get around the uncertainty and eliminate most of your problems.
While most companies add additional employees to practice the segregation of duties effectively, some bring in third-party providers to oversee key company tasks. These part-time professionals add another layer of accountability. This is another potential way to make your business more reliable overall.
Another way that you can segment your company and prevent employees from handling too much of any one process is by rotating your employees. You can rotate employees between different tasks or roles, enabling them to complete several different roles or tasks in the business while still enabling them to oversee the work of other employees. This technique is used in many smaller companies that don't have the resources to add more employees to the mix.
SoD Benefits in Preventing Fraud
Fraud is a serious issue in many modern businesses because the companies are so large, and few people pay attention to what others do. This problem is even more significant in a company's human resources or accounting sections. In most cases, fraud occurs because a single corrupt person is left to handle company resources without oversight.
Many successful segregation of duties examples explain how payment processes were split into multi-step processes for additional protection. This is because it makes more people accountable for the same resources. You're tasking additional people to watch over your company's money, making committing fraud much more difficult. You can also reduce the likelihood of fraud by implementing tools meant for financial fraud detection. Fraud can easily cripple a business if it isn't monitored and prevented, which is why it's essential to implement SoD practices in your business.
SoD Benefits in Reducing Errors
SoD is an acronym that means segregation of duties, and it's that separation that reduces errors. Everyone makes mistakes sometimes. That's why many businesses utilize automatic payment solutions, accounting software, and other computer mechanisms that remove some of the manual elements from accounting, making payments, and handling resources. Even with all the automation that's taking place, serious mistakes are still being made regularly. The only way to prevent those mistakes is to have more than one person look for the mistakes. Segregation of duties breaks down a key task in your company into a multi-step and multi-person process.
When that happens, it reduces the risk of a significant mistake occurring. If a mistake occurs, there are people to spot it and make corrections. To implement SoD successfully, you must separate the production steps from the quality control steps. In other words, you must have different people check the work completed by another. You never want the same person checking their own work. Segregation of duties ensures this is happening so mistakes are found more regularly.
Challenges and Risks in SoD Implementation
There are some serious risks and challenges that come along with a SoD strategy as well. Many businesses that attempt to implement the SoD strategy accidentally add redundancy to their processes. They start having workers duplicate the same work steps. This leads to significant duplication issues and can result in tasks being performed too many times or lots of extra finished work. Errors are more likely to occur when the same task is completed more times than necessary, and when implemented improperly, SoD strategies can harm a company's workflow.
Future of SoD in an Evolving Business Landscape
Segregation of Duties is one useful tool in a long list of different tools used by companies today. It's one powerful tool that can help with cybersecurity risks as well. Evidence shows the separation of duties in cybersecurity can help prevent phishing attacks and other data breaches resulting from user error. When people oversee processes that release valuable information, you have users checking to certify they aren't giving away valuable secrets without realizing it. Individuals make mistakes every day. The key to running a successful business with people that are making those mistakes is to keep them from making them alone. Use segregation of duties to bring people together on tasks and eliminate many mistakes that harm businesses.
Implement SoDs Where They Make Sense for Your Business
The goal is to help you go from wondering, what is an SoD, to understanding the benefits and drawbacks of this business methodology. As a business owner, SoD is likely something you want to implement at least a little. If you're taking steps to keep your employees accountable for the tasks that truly matter, you're protecting your company from some of the most serious preventable problems. SoD must be implemented properly, though, and many companies develop more errors because they don't implement the features of SoD effectively.
