Safeguarding Against Minor Mix-Ups by Creating Clear Roles

Tuesday February 21, 2023 comments Tags: nonprofit, accounting, consulting, fraud, fraud risk assessment, segregating duties

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Hey, it's Chyla Graham, welcome to another episode of The Nonprofit Ace Podcast. This week I want to talk to you about the segregation of duties. So segregation of duties is thinking through who does what. So the best example is around cash. So you want to think about who receives cash? Who records cash? Who deposits cash? So those are three separate steps of hey, cash is here. What do we do with it? So you want to think about who's going to count cash when cash comes into the organization? 

And when I say cash, I don't only mean dollar bills, checks, credit card information, or credit card processing. What does this look like? So who is going to receive this money? When they receive it, are they issuing a receipt? Great, you now have a receipt, you have a logbook, wonderful. 

Now, the person who got this cash, they said thank you, who are they going to give it to to deposit into the bank? The reason you're going to separate these two people is because you want to be able to have some sort of checks and balance. So if someone else takes the money to the bank, you can now say, Okay, I know how much I logged, could I compare that to what was deposited?

So that's what's gonna happen with the person who's recording the cash, they're gonna say, okay, Jessica got $100, did Beth deposit $100, and then what was recorded into the system, so then someone else could then check on what was recorded, they could go to the log, to the deposit slip, into what's in the system and see, do all three of these match. Yes, that means one, yay, our segregation has worked. People are doing what they said they would do. And we have a way to check it. 

You want to separate who has control, because you don't want one person to do all the things. If only one person is receiving the cash, depositing the cash and then recording the cash, they have the ability to steal the money, and no one would catch it until it was too late. Because no one is saying, Oh, I have a deposit log to compare this with, what happened? This is not to say that money won't get stolen, it just makes it harder. Now, because you have a deposit log, if your clients expect to receive a deposit log, that's what happens. 

I remember I used to see it in the food court, at some restaurants, they would say if you don't receive a receipt, it's on us. That is because they're using the receipts as a control mechanism. They're saying, Hey, you gave us money, you didn't get evidence that we got the money. Could this money have been stolen? So even if you don't take the receipt, understand that that's what that is about? That's what they're looking to do. They're looking to make sure that they have a control mechanism in place. 

And of course, the other side of this is what's your segregation of duties around the cash going out. So you want to think of where do checks live? Who is signing checks, who's recording those checks. So where do the checks live? So who has access to the checks? If the person who has access to the checks can also sign the checks? There's a risk now because they could take a check, sign it and no one would be none the wiser. So you want to separate those duties. 

You also want to separate who is going to record the checks from who might be the signer of the check, you're separating that because what if they just said, I only wrote a check for 500, not 5000. You want someone who's gonna say wait a minute, that doesn't match up. 

So what is going to be the way you are segregating the duties in this task, so that you have multiple checks and balances, you have a way to say we caught that or we could have caught that. Unless people are working together. You can't avoid them, you know, colluding, but you can say we are going to do the best we can. 

So that's your homework right now is to think about, how do you break down the steps in terms of receiving cash. Who's receiving, depositing and then recording and in terms of cash going out. Who has access to the checks to the credit card to the debit card? Who is now going to be the signature on this? Who is going to record into the system? What's our approval process? 

Think through all of that so that you can think of where could we catch it, how would we stop this from happening? So what are your internal controls? What are your segregation of duties? Alright, then. This is Chyla Graham. You're listening to The Nonprofit Ace Podcast.


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