The rapidly evolving business landscape poses ample external challenges for organizations. Such challenges often hinder organizational growth and tarnish its credibility. To effectively tackle these obstacles and thrive, it is essential to have dynamic internal controls in place. Segregation of duties is one such internal control method that aids organizations in closely monitoring their processes and employees.
Segregation of Duties (SoD) is the activity of engaging more than one person to complete a specific job. SoD breaks down one job into several smaller but essential tasks and ensures that no one person is in control of an entire system. It is an internal measure of control developed to minimize the chances of unintentional errors and premeditated fraud.
Segregation of duties is a vital element of the internal control framework. The all-around efficacy of a business’s control measures largely depends on the effective segregation of duties policies (SoD). If an organization wants to implement efficient internal controls, then all the prevailing responsibilities within it must be adequately distributed.
Furthermore, the Sarbanes-Oxley Act aims to protect investors from financial fraud and instructs new requirements in view of financial reporting. Such regulations mandate companies to record and certify controls over financial reporting and incorporate segregation of duties. Therefore, SoD is an indispensable component, and as an organization, you must know the secrets to successful SoD policy implementation.
If a user has excess control over a workflow and is in charge of incompatible duties, then it gives rise to segregation of duties (SoD) violations. For instance, when an employee is responsible for procuring vendors and initiating their payments, then a conflict of interest originates and can lead to fraud. SoD violations can be in more extensive forms in large corporations, and therefore, it is imperative to have an SoD policy in place.
But what happens when you don’t employ SoD policies?
Insufficient SoD policies can make fraud detection, investigation, and prevention difficult and lead to distorted financial statements, and asset misappropriation, jeopardizing the company’s reputation, and reducing integrity.
It also impacts internal and external audits. Unreliable internal controls increase substantive investigation by internal and external auditors. This escalates the costs to the organization. After extensive evaluation, the external auditor can deem that the enterprise has a significant deficiency.
Additionally, the absence of SoDs raises questions on the validity, accuracy, and reliability of obtained information and evidence.
Why Segregation of Duties is important?
The above points clearly indicate the importance of SoD policies. However, to give you a quick overview, here are 5 points iterating the importance of segregation of duties:
- It reduces the possibilities of misconduct and fraud.
- In case there are any potential threats, it would be easier for the organization to detect and mitigate them.
- Every member of the organization is aware of their responsibilities, and there is no job role ambiguity.
- SoD can significantly minimize human error and increase the overall efficiency of all departments.
- SoD maps a clear organizational chart and increases accountability.
- It aids the enterprise in maintaining transparency with stakeholders.
It is clear as the day, that every organization needs to have robust segregation of duties policies in place, and determines ways to effectively implement those policies. But how can your team ensure that their efforts will yield the desired results? Read along to find out.
4 factors that contribute to the success of Segregation of Duties policies
1. It’s a marathon, not a sprint:
Although some organizations are quick to implement SoD policies, they crash miserably after a while. It is because what most businesses fail to recognize is that SoD is not a one-time project. Rather it is a recurring process that needs proper evaluation and monitoring time and again. Therefore, as businesses scale, it is imperative to remember that SoD is the first line of defense and needs to be constantly monitored.
2. Automation is key:
Over decades businesses have used spreadsheets to track roles and segregation of duties. But the system is plagued with errors and hidden risks. Whereas technology aids organizations to establish a better and almost flawless SoD process.
3. Systematic and holistic monitoring:
SoD conflicts can occur even after implementing SoD policies. One of the main reasons is that SoD roles are not static. As the position of an employee changes, his new set of duties can easily lead to SoD violations. However, a constant 360-degree overview can help organizations tackle such errors promptly.
4. Mindful SoD management:
Access certification enables the improved implementation of SoD policies. However, managing them manually is an arduous task. But then again, access violations lead to major security breaches. Therefore, organizations need a tool that allows a smooth and flexible workflow of certifying permissions.
What to look out for in an SoD management solution?
In the above list, the fourth point refers to integrating an SoD management tool for efficient SoD policy implementation and management. But what should an effective SoD tool include? Here is a comprehensive checklist to help you.
- SoD Risk Analysis
- Access Certification
- Role Management
- Transaction Monitoring
- Emergency Access Management
- Compliant User Provisioning
Managing segregation of duties (SoD) can be frustrating, especially if you start without any guidance. This article attempts to give a peek into the basics of SoD and provide some helpful tips for better understanding. iRM consists of automation of Segregation of Duties (SoD). The SoD module scrutinizes every business software access by every user and their roles, even at the lowest level of security. It also reports various possible risks and conflicts that are associated with the access granted. Uniquely, iRM SoD automation also provides the ability to estimate every conflict across various applications for providing the management of full SoD in today’s environment of cross-application.