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Why Segregation of Duties is important: Payroll & HR  – Reasons

In today’s world, it is important to make sure that information isn’t leaked from one department to another. This can be a security risk if the information is personal or confidential.Segregation of duties (SoD) policy ensures that no single employee has complete access or control of company resources. An employee having complete access means they have the ability to enter data into an application, read confidential data, modify company files, read sensitive user information, and other such activities.In a company with well-established SoD policies, different employees have access only to their individual sets of responsibilities and no more.Effective internal controls are essential to any organization hoping to protect its assets, safeguard its confidential information, and prevent fraud or theft. Segregation of duties is a commonly used control that helps organizations limit the number of individuals who have access to sensitive data or can approve transactions.This article explains the concept of segregation of duties and how it can be implemented in your organization. In any business, it’s essential to maintain controls over financial transactions and operational procedures. Having strong internal controls is one way to make sure that company assets such as cash and inventory aren’t being mishandled or stolen by employees.In many businesses, this means implementing segregation of duties as an effective control mechanism. In this article, you will learn about segregation of duties as a control measure, different types of segregation of duties, why it should be implemented in your businessIt will also discuss the importance of Segregation of Duties in payroll, Human Resources departments, internal control of business and why you should implement these principles if you don’t already do so.Segregation of Duties in payrollImage: pixabayWhat is a Segregation of Duties?A segregation of duties policy ensures that no single employee has complete access or control of company resources. An employee having complete access means they have the ability to enter data into an application, read confidential data, modify company files, read sensitive user information and other such activities.In a company with well-established SoD policies, different employees have access only to their individual sets of responsibilities and no more. This is an essential practice for payroll and HR departments. It ensures that the employees have the access they need to do their jobs, but nothing more.There are two key elements of a segregation of duties policy:First, the employees who handle money or make critical decisions for a company should not be the same employees who do other types of work, such as administering payroll, managing inventory, or controlling inventories.Second, there should be no overlap between the types of work that each employee is responsible for. A segregation of duties policy is a set of rules designed to prevent fraud, abuse, and error. It can also help an organization comply with the rules that are imposed on publicly traded companies.Those rules require that the risks associated with the financial reporting process be minimized. This is done by limiting the number of employees who have access to sensitive data and/or have the authority to approve transactions.Why is segregation of duties important?Data breaches are among the most serious consequences that can result from a lack of segregation of duties. If an employee has complete access to an application, they can easily modify or delete any information found in it. If they have access to multiple applications, they can also easily cross-reference sensitive information and discover information about other employees.When an employee has full control over sensitive data, it is relatively easy for them to falsify that data. This could result in them receiving higher pay than they deserve, or even receiving pay that they don’t deserve.Seeking benefits to which they aren’t entitled is just one example of how an employee can abuse the power of having full control. They may also falsify data used in the evaluation of other employees. This could lead to someone receiving a lower wage than they deserve.The segregation of duties is tailored to prevent fraud and error in the execution of transactions by preventing employees from having too much control over the business operations. It is done through the division of responsibility between different employees, each responsible for a limited portion of the company’s activities.A segregation of duties policy requires that employees follow a certain procedure in the performance of their assigned tasks. It aims to prevent the possibility of an employee misusing the authority or information assigned to him/her.A segregation of duties policy requires that employees be assigned duties that are unrelated to each other. This is done in order to minimize the risk of fraudulent transactions. Employees should not have access to information that they will use in the performance of their duties.segregation of duties policyImage: pixabayReferring to Information Security standard ISO 27001, the control A.6 ORGANZATION OF INFORMATION SECURITY speaks about segregation of duties:A.6.1.2 Segregation of duties –Conflicting duties and areas of responsibility shall be segregated to reduce opportunities for unauthorized or unintentional modification or misuse of the organization’s assets.To minimise the chances of unauthorised or unintentional alteration or exploitation of the organisation’s assets, it is necessary to divide conflicting duties and areas of responsibility.Access, modification, and use of the assets will only be available to those who have been granted permission or authorisation. This is use of information under Confidentiality, Integrity and Availability. This is to know what has happened and what was authorised. Controls should be designed with the possibility of collaboration in mind. Even for smaller companies division may not possible but the idea should be followed to the greatest extent possible. Go for the other option of segregation, but do it for task reporting, audit trails, and increased management oversight.Segregation of Duties in Payroll and HRImage: pixabayImportance of Segregation of Duties in Payroll and HRA segregation of duties is the practice of dividing up the responsibilities of a job and assigning each part to a different person. These policies are designed to prevent fraud, corruption and errors from occurring.They also protect organizations from lawsuits caused by data breaches or malicious actions. There are multiple functions in a payroll or HR department that have the potential for misuse. Considering this, a segregation of duties policy is crucial for minimizing the risk of data breaches and fraud.The functions that need to be separated include:- Data entry and validation- This includes the creation, modification and deletion of sensitive data. It is best if these activities are performed by different employees.- Access to confidential data – Personnel should not have access to sensitive data unless they need to. If they don’t need to see it, they shouldn’t have access to it.- Control over payroll software – The person who controls the payroll software should not be the same person who imports the data.- Control over payroll accounts – This includes the ability to modify the settings of an account.Synchronization of Employee Data with HRMSSome companies use a Human Resource Management System (HRMS) to track employee data such as hours worked, payroll and benefits. If one employee has full access to this system, they can easily enter false information to benefit themselves. Another employee with limited access to the system can’t do this.If the employee with full access is responsible for syncing the information from the HRMS to the payroll, they can easily falsify data and even enter sensitive information that they shouldn’t have access to. If the employee with limited access syncs the data from the HRMS to the payroll, they can’t enter information that isn’t accurate.When Should You Use Segregation of Duties?The need for segregation of duties arises when your business processes involve high risks of fraud or misuse. Here are some common scenarios that can necessitate segregation of duties: An organization that deals with credit or debit card transactions requires segregation of duties.This is because one person must review and approve every creditor debit card transaction. If two people are involved in the approval process, there is a greater risk of fraudulent activity.An organization that uses cash, such as a retail store, should include segregation of duties in its internal controls. This is because cash is the most common form of payment. Fraudulent employees might change their cash drawer to match the total of sales recorded in the register.An organization that deals with inventory should include segregation of duties. This is because inventory amounts are recorded and also used in the preparation of financial statements. An organization that maintains sensitive information should include segregation of duties. This is because some information is confidential and its misuse may negatively impact the business.Commitment and AwarenessThose who are implementing segregation of duties must make sure that employees understand the process. This is especially true for the employees who are not involved in the implementation of segregation of duties.These employees must be committed to following the rules. They must also be aware of the reasons for segregation of duties and their role in the implementation of the policy.Limiting Access to ResourcesResources, such as computer terminals, databases, and filing cabinets, can be used by employees to misappropriate information or falsify records. You can prevent this risk by assigning each employee access to the resources that are necessary for him/her to perform his/her duties. You can also create a policy that prohibits employees from accessing resources that are used by other employees.Limiting the number of ApproversYou can reduce the number of approvers in the approval of a transaction while still ensuring that fraud and error are kept to a minimum. You can use the single-approver approach, which involves having one person approve a transaction.To reduce the risk of fraud in this type of situation, you should have a very high degree of confidence in the honesty of that person. A variation of the single-approver approach is having one person who is responsible for both collecting and processing the transaction.Limiting the variety of assignments for each employeeYou can reduce the number of people in the approval of a transaction by assigning a single employee two or more transactions. An example is having the same employee approve all travel-related transactions.You can also have one employee be responsible for several transactions that are similar in nature. An example is having one person be responsible for all of the employee terminations in a given month.Limiting Access to Confidential DataAnother role that benefits from a segregation of duties in a payroll department is the person who reviews confidential data. This data could include information about employees, such as social security numbers. Employees with this type of access can view sensitive data that they shouldn’t be looking at.This can cause them to forget to log out of the system when they are finished. If the person reviewing confidential data logs in and out of the system, they won’t forget to do so. They will also be less likely to view sensitive information than if they were logged in to multiple applications at once.ConclusionThis article has discussed the importance of segregation of duties for payroll and HR departments. It has also discussed why it is important to implement these principles if you don’t already do so. It has explained that data breaches are among the most serious consequences that can result from a lack of segregation of duties. If an employee has complete access to an application, they can easily modify or delete any information found in it.There are multiple functions in a payroll or HR department that have the potential for misuse. Considering this, a segregation of duties policy is crucial for minimizing the risk of data breaches and fraud. There are different ways you can implement a segregation of duties in Payroll and HR. It is important that you follow these guidelines to ensure that no malicious activity takes place in your company.The goal of a segregation of duties policy is to minimize the risk of fraud and error by ensuring that employees perform a single task or a limited number of tasks. It is recommended that you implement a segregation of duties policy in all of your business operations. It is also important that you periodically review the segregation of duties policy to make sure it continues to meet your organization’s needs.

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