Think you're too small to segregate duties? Let's find out!

Segregating duties is a best practice that protects against error and fraud, but it can be hard to do when you don't have enough people.

But fear not! Just because your government has a small staff does not mean it is impossible to implement this important internal control. It mostly depends on the decisions you make. Segregating duties is not an ‘all or nothing concept' – you can segregate responsibilities as much as you can and then fill in any gaps with oversight controls.

We have only one accountant, what should I do?

Imagine a small city with just one accountant (or maybe you are one), one public works employee, a Mayor and Council. This city cannot segregate duties with only one accounting employee; they need to focus on controls that provide adequate oversight. This might take the form of reviews and approvals that could be performed by the Mayor, another qualified and experienced council member, or by a third party like a paid contractor. Appendix A, figure 1, in our Segregation of Duties guide gives an example of how to organize a one-person accounting department with oversight controls.

How do I decide which duties to segregate?

If you are a small government with two or more accounting employees and a third oversight person, you can segregate a few duties. Appendix A of our Segregation of Duties guide can help you here too. Keep in mind these are only suggestions; each government needs to decide the best way to assign responsibilities for its particular circumstances. Many acceptable options are possible.

When one person controls a process from start to finish, it can create a higher risk of error or fraud. If you involve more than one employee in the process, risk is lowered. If you are not sure what duties create higher risk for a small staff in each financial system or process, see our guide.

If I can't segregate duties, how do I choose oversight procedures?

Brainstorming potential solutions is beneficial, as you likely have several options. For example, take a cashier that accepts cash payments unsupervised. This provides the opportunity for skimming, or theft of payments before they are recorded. Let's assume this cashier works at a building and planning counter issuing permits and taking payments. Some options to provide oversight and prevent or detect skimming might be:

• Consolidate this cashiering function with others in the same building, so that you have one larger cashiering operation with adequate oversight. (Note: this is actually accomplishing segregating duties)
• Post a sign telling customers to expect a receipt, which will prompt the payment to be recorded. If manual receipts are used, periodically check inventory receipt books to verify they are used in sequential order and all receipt books are accounted for. In addition, periodically check that no unauthorized receipt books are in use. This could be done as part of a surprise cash count which is also an oversight control.
• Reconcile permits issued to the cash receipts recorded in the system, regularly or periodically.
• Monitor all revenue streams that the cashier has access to. Verify that the activity for all cash receipting sources meet your expectations.
• Monitor deposits for reasonableness as compared to permit activity, looking at daily totals as well as cash vs. checks collected.

As you can see, there are many different routes you can take. In some cases there might be one solution, in others you might add several oversight procedures. You have to decide what makes the most sense given your situation, your perceived level of risk, your appetite for risk, and the resources available.

Our Segregation of Duties Guide has examples of oversight controls for many risks.

My auditor made a recommendation to improve my internal controls. Now what do I do?

Our auditors periodically communicate concerns with segregation of duties. Some government officials want us to provide specific recommendations on how to fix those concerns. There isn't a one-size-fits-all solution; internal control systems can be set up in many effective ways, and each entity is unique. Your local government management team is better suited to design your internal control structure than SAO. Our Office can brainstorm options with you and discuss pros and cons. We also have some great resources to share!

Where do I find resources?

State Auditor's Office Segregation of Duties Guide.

Self-assessment checklist tool.

If you have specific technical accounting questions, you can submit them using our HelpDesk in the client portal.

We also have financial management specialists at the Center for Government Innovation available to talk through your internal control systems. For assistance, reach out to the Center@sao.wa.gov.