Segregation of Duties
Most business owners don’t want to believe it, but every organization has some level of fraud that occurs. According to the Association of Certified Fraud Examiners (ACFE) Report to the Nations 2024, 89% of frauds are related to asset misappropriation (e.g., theft). One thing I notice when I work with clients is they often do not have appropriate preventative internal controls in place to prevent and detect employee theft.
One of the most effective ways to prevent fraud in any organization is by implementing proper segregation of duties. This means dividing key responsibilities among different people, so no single individual has control over all aspects of a financial transaction.
For example, imagine an employee has the ability to receive inventory and also record the receiving of that inventory into your ERP or accounting system. It makes it pretty easy to take that inventory out of the store so they can sell it themselves and never have it recorded in the accounting system. I was involved in a fraud investigation recently where this exact incident occurred, and wasn’t detected until almost a year later. The loss was close to $230,000.
When one person is responsible for authorizing transactions, recording them, and having custody of assets, it creates an opportunity for fraud to go undetected. By separating these duties, you add a layer of oversight and accountability that reduces risk and protects your business.
Even in small businesses, where resources are limited, creative solutions can help establish checks and balances. Something as simple as having a second person review bank statements or approve payments can make a big difference.
Segregation of duties isn’t about a lack of trust—it’s about safeguarding the integrity of your operations. Putting these controls in place shows your commitment to running a transparent and trustworthy business.
