Segregation of duties prevents theft and errors, because a worker who performs one task has his work confirmed by another worker before the task is completed. Effective segregation of duties requires the company to classify tasks into categories, so one worker can perform multiple tasks as long as they involve similar functions, such as the collection of cash and collection of checks.
The main task that needs to be kept separate from other tasks is asset handling. This involves storing products in a warehouse and delivering them to customers, as well as cash transactions. Bookkeeping, in which one clerk records a purchase, should be separate from review, when another clerk reconciles transactions and confirms their accuracy. The worker who authorizes a purchase order should not be the same worker who sends the check to the vendor.
Number of Employees
Effective segregation of duties requires at least two employees, and preferably three, for each task that involves the risk of a financial misstatement. Involving four or more employees makes it easier for the manager to reduce theft risks, but may require too many resources in a small company. A company may assign two workers to perform a task together if assigning either worker alone would violate the separation of duties.
Segregation of duties requires proper design of work schedules and job postings. If a clerk only collects checks from customers and doesn't record the bank deposits, she might not have enough work to do to justify a full-time job. The company may hire two part-time clerks instead, so one clerk can collect checks and the other can record the collections. If the clerk can collect checks from multiple sources -- such as a university staffer collecting tuition checks from current students, donations from alumni, and payments from restaurants on the campus -- she can still have a large workload.
If a company doesn't have enough employees to effectively segregate duties for all business functions, it can create a compensating control activity. During the compensating control activity, a manager reviews any business function where there is the potential for one worker to steal money and alter records, because another worker isn't assigned to regularly check his work.
Segregation of duties requires proper classification of job roles. A cashier's job is different from the worker who hands out paychecks, or a purchasing agent who uses a company credit card to buy office supplies, but all three of these jobs require handling money for the company. This means the same employee can perform them without violating the separation of duties.