Tag Archives | separation of duties

Accounting Fraud Prevention

See Also:
Accounting Depreciation
Account Reconciliation
Cash Flow Projections
How to Develop a Daily Cash Report
Future of the Accounting Workforce

Accounting Fraud Prevention

A small business owner typically cannot afford to hire enough people to have proper separation of duties to gain the internal controls needed to prevent accounting fraud.

Using Internal Control and Prevent Accounting Fraud

Every business owner can achieve accounting fraud prevention by taking these simple steps:

1. Open the Bank Statement Yourself

Every small business owner should receive the unopened bank statement. Then they should review each check for authorized payee and signature and approve electronic payments. Only after they do the above should they give it to the bookkeeper.

2. Don’t Let Your Bookkeeper Reconcile the Bank Account

The person who pays the bills should never reconcile the bank account. That’s how they cover their tracks. If you don’t have someone else to do it, then this is an easy function to outsource.

3. Close the Prior Accounting Periods

Once you produce a financial statement, that period should be “closed”.  As a result, this reduces the risk of hiding a fraudulent transaction in a prior year.

4. Attach Scanned Images to Each Accounting Transaction

Most fraud occurs from check tampering. For example, the bookkeeper changes the payee to themselves. Prevent accounting fraud by scanning the bill and linking it to each accounting transaction.Thus, this makes it harder to fake a bill.

5. Set Up Username for Each User

If your staff login as “Administrator,” then you have no idea who made what entry. Set up a username for each user that way you can track who did what and when.

6. Restrict User Access

Make sure you have separation of duties between authorization, record keeping, and custodial responsibilities for each accounting transaction.

No system of internal control should be built on trust. The best accounting practice is to separate out the following functions: authorization, record keeping, and custodial responsibility for assets in each accounting transaction.

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Separation Of Duties

Separation of Duties Definition

Some circles refer to separation of duties as segregation of duties. It refers to a concept that leads to greater internal control within a company. The accounting separation of duties definition is a theory that the job of an employee should provide a reasonable evaluation for the job of another employee. In layman’s terms, no one person has too many responsibilities rested on him/her. What this does is prevent mistakes and fraud which could bring detrimental consequences upon the company as a whole as well as the individual.

Separation of Duties Example

A separation of duties example could be the relationship that exists between an accountant and a cashier. This policy maintains that the accountant should not update the cash balance on the cash as well as keep track of the cash on his person. Contrarily, the cashier should not have both those responsibilities either. It upholds that the accountant should keep track of the cash books while the cashier accepts responsibility for the cash that’s on hand. At the same time, separation of duties works for constructs other than business types. Our government has Legislative, Judicial, and Executive branches. The “duty” of running an efficient and successful government is spread over three entities.

Accounting Separation of Duties

While it is intelligent for there to be some sort of accounting separation of duties when it comes to jobs in general, it is paramount to efficiency and success. In fact, keep accounting completely separate from the rest of the operations divisions in the company. This remains constant for all aspects of production and financing. Therefore, there should be no individuals in the work-in-progress section that are keeping track of products in the finished goods section.

Why Is Separation Of Duties Important?

Obviously, as said before, duties maintains an efficient balance of work that ensure the accuracy and correctness of jobs. The work of one man, in turn, checks the work of another. Overall, this keeps a company or organization running as smoothly as possible. In addition, it produces accurate product and financial information. Separation of duties also creates jobs for more individuals. If one person was expected to be responsible for multiple jobs, then there would most certainly be fewer jobs for others. This spreading of responsibility allows for a more manageable workload. In addition, it allows for more available responsibilities for others to take.

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Sarbanes Oxley Act of 2002

See Also:
Securities Act of 1933
Securities Exchange Act of 1934
Audit Committee
American Institute of Certified Public Accountants – AICPA

Sarbanes Oxley Act of 2002

The Sarbanes Oxley Act of 2002 or SOX for short is further regulation of the secondary market by requiring further internal controls within companies and extensive audit practices. The Sarbanes Oxley Act 2002 resulted from several accounting scandals that plagued the early 2000s such as Enron, Tyco, Worldcom, and several others.

Sarbanes Oxley Act of 2002 Explained

Bi-partisan legislation by Paul Sarbanes (D-MD) and Michael Oxley (R-OH) created the Sarbanes-Oxley Act. The creation of SOX regulation was a result of investors mistrust in the market place after several scandals were revealed in the market. Consider Sarbanes Oxley an extension of the Securities Exchange Act of 1934. Sarbanes-Oxley is most known for the creation of the PCAOB, an extension of the SEC, who regulate accounting firms who audit companies. They also emphasize internal controls within businesses. These internal controls and audits involved regulation over not just employees, but both board members and management who neglected their duties. Separation of duties became a big factor in the regulation and rotation of tasks. As a result, no one employee would be able to keep a scandal going for very long.

After, SOX was put into place there became a concern by some after several years that it was too regulatory. And the costs associated with the new regulations were too high to maintain. It has thus been argued that there needs to be a softened form of Sarbanes Oxley as to prevent movement away from U.S. markets as well as to reduce a barrier to entry formed from entering the market. However, the US recently revisited the law in June 2010, and it is still fully operative.

If you want to overcome obstacles and prepare how your company is going to react to external factors, then download your free External Analysis whitepaper.

sarbanes oxley act of 2002

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sarbanes oxley act of 2002

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