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A common myth among small business owners is that small organizations don’t need to segregate duties. They erroneously believe that their trust in their employees negates the purpose of segregation of duties, or they think there would be a higher cost to implement SOD. However, procedures can be designed to segregate incompatible duties without significantly increasing costs. Implementing basic controls or involving an outsourced accountant or CFO can contribute to this segregation, enhancing the business’s protection without a dramatic increase in expenses. This strategy ensures integrity and security in financial operations, even in smaller teams.

Why is Segregation of Duties Important?

Segregation of duties is a process in which certain financial or finance-related tasks or duties are shared among two or more individuals to reduce the risk of error, fraud, or malfeasance. SOD should be an essential part of an organization’s finance controls, as it reduces the risk of all duties falling on one individual who could end up making a fatal error or committing fraud or theft.

Segregation of Duties and Risk Management

All organizations, no matter their size or industry, should have a robust risk management plan and departmental controls that account for common errors or fraud in their industry. SOD is an important part of that risk management plan as it leaves no room for dishonesty or inaccuracies across departments. Implementing SOD controls will prevent a single employee from having complete control over financial accounting, reporting, or any transactional recordkeeping. This will significantly reduce your risk and mitigate losses.

Risks of Not Segregating Duties

If your organization does not segregate duties across departments, you run the risk of granting a single employee full control over certain or all elements of your financial or accounting processes. If this employee decides to commit fraud or theft, there are no checks and balances in place to prevent it from happening, and you might not notice right away. The employee will have ample time to cover their tracks. You also run a greater risk of errors not being detected until your next audit, which can cause major issues with your finances.

How an Outsourced Accountant or CFO Can Help

Outsourcing your accounting processes or using an outsourced CFO can provide a separation of accounting duties and make it much easier to implement SOD. Finance and accounting outsourcing can eliminate the risk of theft and embezzlement, and even lower your risk of financial and accounting errors. By outsourcing your accounting or financial duties, you are inherently implementing SOD without having to disrupt your employees’ routines or risk making employees feel like you don’t trust them.

At Tomlinson Financial Group, we offer a full scope of outsourced accounting and financial advisory services in Arizona and beyond. Our mission is to collaborate with clients to provide unique solutions for their accounting needs. We work closely with each client to seamlessly integrate financial processes, controls, and infrastructure to streamline processes, make them more efficient, and reduce the risk of error. Call us today or contact us online to get started.

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