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Separation of Duties Guide

This guide provides information about the important role good separation of duties plays in helping to establish a strong, effective financial control environment in a campus department, and how to implement good separation of duties in financial processes.

Ensuring that the positions involved in performing departmental financial processes do not have conflicting duties is critical to reducing the risk of errors, misappropriations, fraud, and maintaining a strong financial transaction control environment.

The information provided in this guide is intended to be used in conjunction with the information provided in the Understanding Financial Transaction Controls and Understanding Financial Accountability guides. For questions, email: controller@ucsc.edu

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  • What is separation of duties

    Having adequate separation of duties, also known as “segregation of duties,” in a financial process means properly assigning the handling of financial process control procedures among two or more competent and qualified individuals in a way that provides reasonable assurance that transactions processed will comply with the seven transaction process control standards described in the Key principle.

    • In a financial process having good separation of duties, it is expected that at least one individual involved in the process will identify and/or prevent a transaction processing error, misappropriation, or fraud from occurring.
    • The individuals performing process control duties must be provided with adequate training, support, and authority in order to be successful. Refer to the Financial Accountability Guide for more information on this topic.

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  • Key principle

    Establishing adequate separation of duties in a financial transaction process requires that no one individual be assigned job functions in more than one of the following three categories of duties:

    1. Asset handling and disposition:
      • These duties include having physical access to University assets or being in a position to control where an asset is directed.
      • Assets include cash, tickets and passes, purchasing cards, supplies, equipment, books, UCSC vendor and payroll checks, and purchase orders.
      • Being in a position to direct where an asset goes involves duties like initiating a vendor or payroll payment in the Financial Information System (FIS), setting up a new employee in the Payroll Personnel System (PPS), making an adjustment to a student account transaction in the Academic Information System (AIS), placing an order for supplies, distributing payroll checks, and specifying where supply orders are to be delivered.
      • Positions handling duties of this type include cashiers, CruzBuy order initiators, FIS requisition and purchase order initiators, PPS/CruzPay timekeepers, payroll check distributors, storeroom custodians, and equipment managers and custodians.
    2. Booking, or recording, transactions to the general ledger, subledgers, and journals:
      • These duties include recording, or posting, a financial transaction in the campus’ general ledger, which is maintained within the FIS.
      • The recording of a financial transaction in the FIS ledger occurs when a vendor invoice, direct payment, or journal voucher is approved on-line.
      • Positions handling duties of this type include CruzBuy order approver; FIS requisition, purchase order, invoice, or journal voucher approver; cash deposit preparer; and Equipment Inventory Modification Request (EIMR) approver.
    3. Comparison or review of transactions or balances:
      • These duties include reviewing transactions appearing in the general ledger for validity and reasonableness, reviewing PPS Post-Audit Notification (PAN), and comparing transactions to supporting independent records or documentation, such as employee timecards, or vendor invoices or statements.
      • Positions handling duties of this type include ledger transaction reviewer/certifier, Distribution of Payroll Expense (DOPE) report reviewer, PPS PAN reviewer, and transaction edit report reviewer.

    This principle can be thought of as being the “ABCs of Separation of Duties.”


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  • Separating duties

    Consider the following in assigning duties to each of the individuals involved in handling a financial transaction process:

    • The preferred number of individuals that should be involved in handling a financial process is three or more.
      • At this level of staffing, satisfactory separation of duties can be attained relatively easily.
    • The minimum number of individuals who can successfully operate a financial process is two.
      • At this level of staffing, satisfactory separation of duties can be attained, but not without careful planning.
      • For some processes, certain duties may have to be performed jointly by both staff members.
      • Subfunctions with a single duty may have to be divided between the two staff members in order to achieve acceptable separation of duties.
    • An individual involved in more than one financial process should be assigned duties within the same duty category, such as asset handling, across the different processes. For example, individuals with asset handling duties in the cash handling process should be assigned only asset handling duties in other financial processes.
    • Adequate separation of duties must be maintained at all times in a financial process.
      • A staff member serving in a backup role must be competent and have the same authority as the individual normally performing the duty.

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  • Transaction process control standards

    All the of the individuals involved in a financial process, through the performance of their individual control duties, are expected to ensure each transaction complies with all of the following control standards applicable to the particular process:

    • Appropriate: The transaction is directly related to achieving the mission of the University.
    • Valid: The transaction is allowed by policy, law, contractual agreement, and/or professional standards.
    • Reasonable: The amount being paid for a product or service, or received in payment for a product or service is fair.
    • Funded: For payment transactions, sufficient funding exists to pay for the transaction.
    • Accurately recorded: The transaction amount is consistent with value received, provided, or adjusted for; and is free from accounting coding or arithmetic error.
    • Supportable: The amount being paid or received for a good or service, or the amount of an adjustment is consistent with supporting documentation, standard, situation, or practice.
    • Timely recorded: The date associated with the transaction is accurate.

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  • Example: Cash handling

    Here are some examples of how duties may be divided under three different business environments

    Responsibility Duty Category Ideal:
    4-person
    Environment
    Good:
    3-person
    Environment
    Minimal:
    2-person
    Environment
    Cash receiving (cashiering) and counting cash as part of the cash drawer closing process Asset handling Coworker 1 Coworker 1 Joint - Coworkers 1 & 2*
    Deposit preparation, and the recording of cash receipt on the Departmental / Sub Cashier Cash Collections Deposit Form. Booking/ Recording Coworker 2 Coworker 2 Joint - Coworkers 1 & 2*
    Cash-related ledger correction or adjustment (journal voucher) review and approval Booking/ Recording Coworker 4 Coworker 3 Initiation: Coworker 2
    Approval:Coworker 1
    Making the cash deposit at the Campus Cashier’s Office Asset handling Coworker 3 Coworker 1 Coworker 1
    Comparing cash deposits recorded in the general ledger to deposit amounts appearing on copies of the Departmental / Sub Cashier Cash Collections Deposit Form Comparison/Review Coworker 4 Coworker 3 Coworker 2**

    * Closing of cash drawer is performed jointly with both coworkers witnessing count and certifying deposit amount appearing on the Departmental / Sub Cashier Cash Collections Deposit Form. Coworker 2 retains and secures the copy of Miscellaneous Receipts Form for ledger review purposes.

    ** Ideally, the fund custodian or his or her authorized designee, either of whom should be someone other than coworkers 1 or 2, should review and certify the ledger transaction review.


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  • Example: CruzBuy purchase

    Responsibility Duty Category Ideal:
    4-person
    Environment
    Good:
    3-person
    Environment
    Minimal:
    2-person
    Environment
    Order initiation in CruzBuy Asset handling Coworker 1 Coworker 1 Coworker 1
    Order approval in CruzBuy Booking/ Recording Coworker 2 Coworker 2 Coworker 2
    Confirmation of the receipt of the product or service Asset handling Coworker 3 Coworker 1 Coworker 1
    Expense-related ledger correction or adjustment (journal voucher) review and approval Booking/ Recording Coworker 2 Coworker 2 Initiation: Coworker 2
    Approval: Coworker 1
    Ledger transaction review and certification Comparison/Review Coworker 4 Coworker 3 Coworker 2*

    * Ideally, the fund custodian or his or her authorized designee, either of whom should be someone other than coworkers 1 or 2, should review and certify the ledger transaction review.


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  • Example: Billing and receivables

    Here is an example of how billing and receivables-related duties may be assigned to attain adequate separation of duties within three different staffing environments.

    Responsibility Duty Category Ideal:
    4-person
    Environment
    Good:
    3-person
    Environment
    Minimal:
    2-person
    Environment
    Review and approval of billing data included on bills Booking/ Recording Coworker 1 Coworker 1 Coworker 1
    Billing adjustment issuance, including account credit issuance and bad debt balance write-off authorization Asset handling Coworker 2 Coworker 2 Coworker 2
    Billing adjustment transaction ledger or billing system recording approval Booking/ Recording Coworker 3 Coworker 1 Coworker 1
    Comparing the accounts receivable balance recorded in the general ledger to the total billings reflected in the billing system or records Comparison/ Review Coworker 4 Coworker 3 Coworker 2

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  • Where to get help

    Assistance with your separation of duties questions is available from the Campus Controller’s Office.


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  • Relevant Appendices

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