What is segregation of duties?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
Segregation of duties is the practice of splitting the steps of a financial transaction between different people, so that no one person authorises, completes and reviews the same transaction alone. Spreading the work this way means a mistake or a dishonest entry made by one person is more likely to be spotted by someone else.
A supplier payment shows how it works. Someone approves the purchase, someone records the bill, someone makes the payment and someone checks the bank statement afterwards. When the same person does every step, an error or a payment to a false supplier can go through without anyone else seeing it. Handing even one of those steps to someone else adds a check that does not depend on trusting one person.
Small businesses often have too few people to separate every step. A common approach then is for the owner to keep the approval and checking steps: authorising payments, looking over the bank statements and reviewing a bank reconciliation that someone else has prepared. This is not full separation, but it means the person recording transactions is not the only one who sees them. Which steps to separate depends on the business, and your accountant can help you weigh it up.
In Australia
The Australian Charities and Not-for-profits Commission (ACNC) covers segregation of duties in guidance written for registered charities rather than for businesses in general. Its guide to protecting a charity from fraud lists a lack of segregation of duties, or relying too heavily on a few individuals, among the features that can leave a charity's funds and assets without effective oversight, particularly in smaller charities. It also names a person having sole control of a financial process from start to finish as a warning sign to look out for.
Among its suggested steps, the ACNC says to separate duties where possible, so that authorising, completing and reviewing a charity's financial transactions do not all rest with the same person, and to divide duties between staff where possible so irregularities can be noticed. Its factsheet on managing money, part of its library for small charities, makes the same point about sole control. The fraud guide also says each charity has to weigh protective measures against the administrative burden they add, and should use its judgement so that anti-fraud steps are appropriate and proportionate.
Worked example
| Step | Who does it |
|---|---|
| Approve the bill for payment | Owner |
| Enter the bill and prepare the payment | Office staff member |
| Authorise the payment in internet banking | Owner |
| Reconcile the bank account | Outside bookkeeper |
| Look over the reconciliation and bank statement | Owner |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Letting the person who enters supplier bills also add new suppliers and release payments, with nobody else checking.
- Assuming a small team cannot separate anything, when the owner can still look over the bank statements and a reconciliation someone else has prepared.
- Sharing one internet banking login among several people, so nobody can tell who made a payment.
- Relying on trust in a long-serving staff member instead of a check that does not depend on any one person.
Related terms
Related service
Bank reconciliations
Each bank, card and loan account reconciled to its statement.
Sources
- Protect your charity from fraud
Australian Charities and Not-for-profits Commission. Current at 16 October 2026, released 10 July 2023. Checked 16 October 2026.
© Commonwealth of Australia 2018 Licence: CC BY 4.0.
- Small Charities Library - Manage charity money
Australian Charities and Not-for-profits Commission. Current at 16 October 2026, released 10 July 2023. Checked 16 October 2026.
© Commonwealth of Australia 2018 Licence: CC BY 4.0.