Why Segregation of Duties is Important for Information Security

In essence, the physical custody of an asset, the record keeping for it, and the authorization to acquire or dispose of the asset should be split among different people. A problem with the separation of duties is that it is much less efficient and more time-consuming than having a single person be responsible for all aspects of a transaction. Thus, you should examine the tradeoff between increasing the level of control and reducing the amount of efficiency when deciding whether to implement the separation of duties in some areas. It is quite possible that the improvement in control is not sufficient to offset the reduced level of efficiency.

Request a demo to explore the leading solution for enforcing compliance and reducing risk. One person orders goods from suppliers, and another person logs in the received goods in the accounting system. The sales rep would sell the deals, write the insertion orders for the broadcasted content and report to accounting on the closed and delivered deals. ChatGPT is an AI chatbot that uses natural language processing to create humanlike conversational dialogue.

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One of the laws that enforce separation of duties is the Sarbanes Oxley Act of 2002 (SOX). In response to a wave of company accounting scandals, SOX required audit committees and senior executives to be accountable for the accuracy of their issued financial statements. Many counter that SOD policies create more roles, increase complexity, and slow business processes.

• Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions.
• Not only does enforcing proper SoD controls prevent conflicts of interest, but it will keep your organization in line with regulations and help you pass your next audit.
• For this reason as well as objectivity, why not have a discussion about separation of duties as it relates to IT security with your external auditors?
• This was the wisdom used by the founding fathers so that one branch did not hold all the power to govern the people, not even the US president.
• Imagine the possible chaos and damage if one entity possessed the power to define permission parameters and assign permission to themselves or an outside threat actor.

It ensures that human error or fraud does not cause various problems in your organization. A lack of clear and concise responsibilities for the CSO and chief information security officer has fuelled confusion. It is imperative that there be separation between the development, operation and testing of security and all controls.

Customer Identity and Access Management As the Key to a Customer Satisfaction

In the matrix above, the person in charge of hiring employees cannot also be in charge of changing compensation or creating paychecks. This is not an exhaustive presentation of the software development life cycle, but a list of critical development functions applicable to separation of duties. The accounting profession has invested significantly in separation of duties because of the understood risks accumulated over hundreds of years of accounting practice. In essence, SoD implements an appropriate level of checks and balances upon the activities of individuals.

When any user abuses the assigned access, performing an action prohibited by company policy or industry regulation, this is considered a violation and it is investigated for potential fraud or harm. Segregation of duties (SoD) is an internal control designed to prevent error and fraud by ensuring that at least two individuals are responsible for the separate parts of any task. SoD involves breaking down tasks that might reasonably be completed by a single individual into multiple tasks so that no one person is solely in control. Companies often struggle with implementing segregation of duties (SoD) due to several reasons.

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Compelled to address SoD issues within the company – specifically in order-to-cash and procure-to-pay processes – Scapa, a worldwide leading manufacturer of bonding products and adhesive components, turned to Pathlock. Pathlock provided an efficient and effective SoD management tool that was running after just two days of implementation and training. SoD processes break down tasks, which can be completed by one individual, into multiple tasks. The goal is to ensure that control is never in the hands of one individual, either by splitting the transaction into 2 or more pieces, or requiring sign-off approval from another party before completion. All expenditures are expected to be made for ordinary, reasonable, and actual business-related activities in furtherance of University and Health System missions.

Of those organizational structures, one of the most important matter is how companies assign responsibility for certain IT-related tasks. The X-axis would list only the specific procedures (Create requisition, Authorize requisition, Create order, Authorize order). Each user role would be rated low, Separation Of Duties medium, or high risk related to performing a particular procedure. In this purchasing example, User 1, whose primary duty is requisition creation, would rate as high risk performing requisition authorization. Ideally, each user role matches one procedure in the process workflow to minimize risk.

Segregation of Duties Concepts

The separation of duties concept prohibits the assignment of responsibility to one person for the acquisition of assets, their custody, and the related record keeping. For example, one person can place an order to buy an asset, but a different person must record the transaction in the accounting records. By separating duties, it is much more difficult to commit fraud, since at least two people must work together to do so – which is far less likely than if one person is responsible for all aspects of an accounting transaction. When separation of duties is not possible due to a small department size, compensating controls must be put in place. Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties.

Individuals in these roles can cause significant damage to a company, whether inadvertently or intentionally. It is important to build a role with IT security capabilities so that no one can abuse it. A common SoD for payroll is to ask one employee to be responsible for setting up the payroll run and asking another employee to be responsible for signing checks. This way, there is no short circuit where someone could pay themselves or a colleague more or less than they are entitled to. SOD is a fundamental internal accounting control prohibiting single entities from possessing unchecked power to conceal financial errors or misappropriate assets in their specific role.

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Third, ask if any one person has influence over controls design, implementation and reporting of the effectiveness of the controls. The answers to all these questions should be “no.” If the answer to any of them is “yes,” then you need to rethink the organization chart to align with proper SoD. The concept of SoD became more relevant to the IT organization when regulatory mandates such as Sarbanes-Oxley (SOX) and the Gramm-Leach-Bliley Act (GLBA) were enacted.

• So, if a 50 percent probability for a $20,000 loss was on the indifference curve for Company A, then the company may live with that risk without spending resources to create controls to lower the probability of the occurrence.
• Organizations should regularly review the program to ensure that related controls and processes meet evolving requirements.
• At the very least continue to learn by enrolling in our monthly Cybersecurity newsletters to stay on top of current cybersecurity updates.
• Much to the general manager’s disappointment, variances between the two inventory valuations continued and book value climbed.

Understand how Separation of Duties can help you maintain security and compliance for your business-critical applications. It is understood that different Information Systems will have different
requirements (Confidentiality will be more pertinent in the Protected Core than
in the Perimeter, for example). PCI DSS GUIDE’s aim is to clarify the process of PCI DSS compliance as well as to provide some common sense for that process and to help people preserve their security while they move through their compliance processes. Duties and responsibilities should be separated to reduce opportunities for unauthorized or unwitting alteration or misuse of the organization’s assets.

How is Cyber Security Beneficial to my business?

Following the protocols, different people perform each of the following tasks as part of the system of checks and balances. As an example of the segregation of duties, the person who receives goods from suppliers in the warehouse cannot sign checks to pay the suppliers for those https://kelleysbookkeeping.com/ goods. As another example, the person who maintains inventory records does not have physical possession of the inventory. And as a third example, the person who sells a fixed asset to a third party cannot record the sale or take custody of the payment from the third party.