When it comes to preventing fraud, Segregation of duties (SOD) isn’t just a best practice – it’s a necessity for any business looking to safeguard its finances and reputation. SOD is a risk management approach that involves dividing critical responsibilities among different people. This division of tasks ensures that no single person has control over an entire transaction process, making it significantly harder for fraud to go undetected.
Data from the Association of Certified Fraud Examiners reveals the costly impact of fraud across the Asia-Pacific region. In 2024, the median loss from fraud cases involving executives was a staggering $1 million. When high-level executives commit fraud, they have the access and authority to cause serious financial damage – often without detection for long periods.
The basics of segregation of duties
Think of SOD as an internal checks-and-balances system. It requires that key steps in financial transactions are handled by different people.
Here’s a snapshot of how responsibilities might be divided:
| Role | Example responsibility |
| Initiation | 📝 Raising a purchase order, issuing invoices |
| Authorisation | ✅ Approving payroll, releasing payment batches |
| Record-keeping | 📂 Filing source documents, like invoices or receipts |
| Reconciliation | 🔍 Cross-checking records with bank transactions |
Risks of overlapping duties
When roles aren’t clearly defined or separated, the door opens to risk. Having one person control all parts of a transaction process can lead to undetected errors and fraud. For instance, without SOD, an employee could generate fictitious invoices and approve payments without oversight, siphoning funds directly from the company.
How SOD helps in fraud prevention
- Reducing opportunities for fraud
Segregating duties makes it challenging for any one person to commit fraud without being detected. For example, if one employee inputs supplier invoices, a separate person would need to approve and process the payment. This distribution of tasks serves as a natural deterrent, as it would require collusion to execute any unauthorised transaction. - Building a culture of accountability
When responsibilities are split, employees know their actions will be subject to another layer of review. This accountability helps to deter potential fraudulent behaviour, as individuals are aware that their activities are being monitored. - Improving detection of errors and anomalies
SOD doesn’t just prevent fraud – it also helps reveal issues early. When separate people handle different aspects of a transaction, unusual transactions or discrepancies can be flagged quickly. For instance, if a reconciliation process reveals that bank records don’t match accounting entries, this can prompt an immediate investigation.
Implementing SOD in your business
To put SOD into practice:
- Review your current workflows.
- Identify points where responsibilities overlap and map out how duties could be better separated.
- Provide training so employees understand the value of SOD and their roles within it.
- Conduct periodic reviews. As your business evolves, these controls should be evaluated to ensure they remain relevant and effective.
Use our Free Checklist: Segregation of Duties to self-assess your current processes.
How can Pilot help?
We often help businesses by reviewing internal processes and offering practical solutions to fix any issues we find. In many cases, we discover that while SOD controls exist, they’re not always being followed as intended—and key executives may not be aware of this. Our team can help identify where processes are slipping and provide straightforward steps to get back on track, reinforcing your defences against fraud and errors.
If you need guidance on establishing SOD or improving existing processes, contact Cameron Woodcroft, Dean Strati or your Pilot advisor 07 3023 1300.