Understanding Segregation of Duties: Enhancing Financial Integrity and Control (Full Transcript)

Speaker 1: Hello everyone, I am Dr. Ezehattab welcoming you all on today's discussion on the topic Introduction to Segregation of Duties, SOD. Segregation of Duties or SOD is a fundamental control mechanism designed to prevent fraud and errors in financial operations. It ensures that no single individual has control over all aspects of a financial transaction, which is crucial for safeguarding our organization's financial integrity. Why is SOD so important? It not only protects organizations from financial misstatements and operational inefficiencies, but also enhances internal controls, making it harder for fraudulent activities to go unnoticed. Case 1, user creates a vendor and an invoice for the vendor. Imagine a scenario where a user has the ability to both create a vendor and process an invoice. The risk here is clear, they could create fictitious vendors and process fraudulent invoices leading to unauthorized payments. To mitigate this, we must separate the duties of vendor creation and invoice processing and conduct regular audits of vendor master data. Case 2, user creates a customer and an invoice for the customer. Similarly, if the same user is allowed to create a customer and issue an invoice, there is a risk of manipulating invoice details and diverting payments to personal accounts. Here we should separate customer account creation from invoice issuance and implement automated checks to flag any such instances. Case 3, user creates a purchase order and receipts the goods or services. What if a user creates a purchase order and then receipts the goods or services? They could potentially order goods for personal use, bypassing oversight. To prevent this, different individuals should be assigned to purchase order creation and goods receipt with technology enforcing workflow approvals. Case 4, user creates a credit memo and issues a refund. A user who creates a credit memo and also issues a refund poses a significant risk of unauthorized refunds leading to financial losses. Segregating these duties and reviewing high value refunds can help prevent such fraud. Case 5, user creates and approves the purchase order. Allowing a user to both create and approve a purchase order can enable unauthorized purchases to slip through. Dual authorization for purchase orders and regular audits are essential controls here. Case 6, user amends vendor bank account number and pays vendor. Lastly, if a user can amend vendor bank account numbers and pay vendors, there is a risk of redirecting payments to unauthorized accounts. Role-based access controls and alerts for such changes are vital measures to prevent this. In conclusion, effective SORT is crucial for a robust internal control environment by regularly reviewing and updating SORT controls and implementing the measures we've discussed, we can enhance financial integrity and operational transparency. Let's ensure our organization is protected. Implement SORT controls today to safeguard against financial and operational risks. Connect with us to learn more about enhancing your internal controls. Thank you.