Separation of duties

Separation of duties (SOD), sometimes called segregation of duties, is a concept used in various fields, primarily those relating to business enterprises. Under a separation of duties system, no one person in an operation is to be given power over the entire operation. Rather, the various duties within the operation are to be distributed to two or more people who must coordinate and work together to complete the operation. Separation of duties may also be called segregation of duties.

Many business experts see the separation of duties as a safeguard. If one person completely controls an operation, that person may make a mistake or fail to notice some defect; since no one else knows how to correct the failure, the entire operation will suffer. Alternately, if only one person controls an operation, that person may become corrupt, unfit to lead, or tempted to change the operation for personal benefit. In these cases, having more than one person in charge allows other authorities to step in and stop such unwanted scenarios.

Background

Separation of duties is a relatively modern concept in most situations. It only came to major prominence with the growth of large businesses and other organizations. Prior to the 1800s, most world economies relied on small businesses, often run by individuals, families, or partnerships of a few individuals. Similarly, most governments and other large organizations were headed by a monarch or other singular, strong leader. The leader would dictate the course of action, and few people had any ability to question this, even if the idea would ultimately lead to disastrous results.

Over time, however, many factors brought change in this area. The massive growth of world populations, expansion of economies, birth of democratic thought, and spread of industrialism all contributed to the growth of large businesses, complex economic systems, and bureaucratic governments. Meanwhile, large organizations came to hold ever-greater powers, meaning that any mistakes or inappropriate actions they allowed to occur might have devastating consequences.

The emphasis on separation of duties policies grew alongside these developments, emphasizing the need for multiple coleaders to oversee the most crucial tasks to ensure correct behavior and the best results. By the twenty-first century, separation of duties became a world standard, observed in most major businesses and organizations.

Overview

Separation of duties became a standard in many accounting systems and businesses that handle major monetary transactions. For example, large companies tend to carefully separate duties such as reviewing write-offs, handling paychecks, balancing bank statements, and so on. Having one person in charge of all these tasks could lead to major problems.

For instance, one person handling more than one of those tasks may make a mathematical error that carries across several tasks and leads to employees not getting enough pay or the company withdrawing more money than it has invested. With no other leader involved, there is little hope that the mistake will be caught and corrected in time. In other scenarios, a person with multiple duties may act inappropriately by approving personal expenses that are not legitimate or moving money from company accounts into personal savings. A corrupt leader could use power over multiple tasks to steal money from an account and hide the loss by altering company records.

After the concept became well-founded in the accounting and business realms, it spread to other areas. The rise of Internet technology led to a great wave of change in business, policy, and law. As Internet technology companies began taking on immense responsibilities, including maintaining digital communication for entire governments and economies, new regulations required them to employ strict controls within their organizations. Internet technology companies adopted separation of duties policies so that single members of the company could not make damaging mistakes that are not caught by others or engage in unethical practices for personal benefit. Separation of duties is most important in matters of security. Experts have warned Internet technology companies that if any single person has the power to alter its financial data, access sensitive information, or make business-changing decisions, that company should reevaluate its separation of duties policies.

Business experts have identified several ways for a business or other organization to practice separation of duties. A business may build a separation of duties into its business plan by identifying tasks that may be conflicting and should not be placed under the control of a single person. A business may also use a more dynamic system, or a two-person system, in which any authorized member of an organization may initiate one of these tasks, but it must be approved and checked by at least one other authorized member. A basic example of a two-person system occurs when one person at a meeting suggests something, and another person “seconds” the suggestion or validates it and allows it to continue. Similarly, to make large company decisions that impact profits, companies can require the signature of multiple members of a board or a number of executives, delaying or avoiding hasty, unilateral decisions. Other organizations may ensure duties are separate by physically having essential operations occur in different factories or compartmentalizing the company’s intellectual property in various divisions.

Employing separation of duties is not always an easy task. One obvious problem arises in small businesses, when there are simply not enough people in leadership roles to handle separate tasks. In these cases, businesses should do their best to divide powers and tasks, but it may not be possible to do fully. Truly effective separation of duties should be demonstrable, meaning that a company can prove its existence and effectiveness to an outside observer. Most businesses carefully document conflicting responsibilities and their assignment to different members and regularly review these assignments and their results to make alterations, if necessary.

In a nonbusiness scenario, this concept may most clearly be seen in multiple-branch governments, in which separate but related departments (such as the executive, legislative, and judicial) must share overlapping powers and work together to reach conclusions. Once rare, multiple-branch governments are now the standard in most countries.

Bibliography

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