Separation of duties has to do with separating out accounting roles so that you use everybody for what they’re best at, but not everyone has access to everything. If you don’t do it the right way, you’re exposing yourself to a lot of fraud and liability that you just don’t want.
Not long ago there was an EU case that illustrated this risk. An accountant in a small business felt like he was being bullied by some of his coworkers. As a result, he decided it was okay to steal a quarter-million pounds (nearly $326,000 USD) and spend it all on escorts and cocaine in one weekend.
That accountant is now spending two and a half years in prison. That’s doesn’t seem like enough considering the damage he did to that business!
So when you begin to think about separation of duties, there are three main roles. The first is the business owner. The owner should have a high-level view of everything that’s happening.
Next is a bill pay clerk, also known as an accounts payable clerk or AP clerk. That person collects all of the bills, makes sure the vendors are on the approved list, has the owner review and sign all the checks, then pays them at the appropriate time to maximize days of cash on hand in the business.
The other role is the assistant. Often that role can be automated. They handle the collection of the bills, make sure everything is approved, then work with the AP clerk so there are checks and balances.
The AP clerk is the first and easiest place for fraud to be committed. So there needs to be a clear separation of duties. One person needs to collect all the bills and submit everything for review. Next, the person reviewing it needs to really review it and make sure there aren’t any fake bills or double entires. Then someone without authority to sign should prepare the checks.
Finally, the owner should review everything and either sign or use a piece of software that pushes things out. They can use something like billpay.com. The AP clerk can load up all of your bills, check the PDFs, then confirm all the payments and due dates. The owner can log in, review everything, then just mark everything as, “Pay when due,” or “We need to review this.” Then the AP clerk pays the bills when they’re scheduled to be paid.
The owner can now go back to sales or marketing or closing deals!
If you don’t have appropriate separation of duties in place, you are flirting with danger! It’s not a matter of if you’re going to get in trouble, it’s a matter of when. So if you’re ready to outsource that, be sure there’s a system in place. Don’t try to take shortcuts. You’ll just open yourself up to a lot of liability and fraud.