Maintaining trust and safeguarding your organization’s assets is a constant challenge in the intricate web of modern business processes and systems. As organizations grow in size and complexity, powerful solutions that ensure accountability, prevent fraud, and promote efficiency become necessary. The extent of segregation of duties is driven by an organization’s tolerance for risk. Every organization has a certain tolerance for risk and its preference curves, which map the relationship between the probability of a risk occurrence and the amount of gained value that would make the risk worthwhile. As part of risk management, segregation of duties requires a thorough analysis of all roles to identify those that are deemed incompatible based on risk preference curves.

If you’re new to automating SoD, we will help you see the benefits of having an automated solution in place by doing a complimentary segregation of duties health check for you. Maintaining control integrity is not an option in our rapidly evolving market – it’s necessary. Internal controls like Segregation of Duties emerge as the pillars upon which this integrity is built.

On the top-down side of the approach, the organization was analyzed to determine what the roles were for every department, function or office involved. Then, roles were matched with actors described in process-flow diagrams and integrations procedures. This resulted in the ability to match individuals in the process flow with a specific job description within the organization. Adding restrictions for staff members in the ERP system can help segregate duties.

Segregation of duties is also a key Internal Control; it reduces the risk of errors and inappropriate actions. Internal controls and control frameworks are closely linked to Governance, Risk Management, and Compliance (GRC). Organizations use a control framework and internal controls to align their business activities with strategic goals, manage risks effectively, and adhere to regulatory and compliance requirements. Proper segregation of duties helps ensure that errors, omissions, or misstatements, whether intentional or unintentional, will be detected by another person.

Implementing Segregation of Duties: A Practical Experience Based on Best Practices

Minimal Acceptable Degrees of Segregation
In those departments where the optimum degree of segregation cannot be achieved, a minimum degree of segregation must be maintained. At a minimum, no person should be able to perform more than two of the functions. The X, and O represent different staff members, and the M represents a third staff member—the manager. Custody of Assets
Custody of Assets is the access to or control over physical assets such as cash, checks, equipment, supplies, or materials. All University employees are responsible for performing their duties in accordance with proper Internal Controls as established by management. Below is an example of an SoD matrix for an employee compensation process, where a checkmark signifies that the role has responsibility for the task.

• SoD is an important element of both enterprise risk management and compliance with laws such as the Sarbanes-Oxley Act of 2002 (SOX).
• With now over 3K SAP Fiori apps, 10K classic UIs, and more than 600 Business Roles released for SAP S/4HANA, some SAP business roles are now quite large.
• An authorized person should analyze each role for both intra-role and inter-role SoD overlaps.
• Maintaining segregation of duties is especially challenging for units with small numbers of employees.

For example, in SAP S/4HANA 2023 the General Ledger Accountant includes 94 SAP Fiori apps and 152 classic UIs, collected into 36 business catalogs. Mitigating or Compensating Control – additional procedure designed to reduce the risk of errors or irregularities in those instances where duties cannot be fully segregated. From its definition to the top ten most important SoD controls for small businesses, we’ll unravel the layers of SoD to help small business owners navigate the intricate terrain of internal controls. Best Practices for Implementing Segregation of Duties include clear role definitions, regular review, automated controls, rotation of duties… State and federal policies require that accounting transactions be authorized according to sound management practices.

This is a (bottom-up) role-mining activity, which was performed by leveraging the identity management product chosen for the implementation of the identity management system. The SoD implementation tested for this article listed more than 80 potential SoD conflicts, along with the compensating controls that had been applied to reduce risk to acceptable levels. Pathlock provides a robust, cross-application solution to managing SoD conflicts and violations. Finance, internal controls, audit, and application teams can rest assured that Pathlock is providing complete protection across their enterprise application landscape. Separation of duties implements checks and balances that help prevent issues that can negatively affect an organization, resulting in financial losses, regulatory penalties, and irreparable brand damage.

The segregation of duties matrix

It also helps minimize errors, prevent fraud, and limit the scope of damage that an incident can cause. Attention to detail No one likes to be found in error, and separation of duties provides oversight that identifies errors. Because of the checks and balances provided, organizations see a culture develop that demonstrates attention to detail driven by a desire to avoid errors, which benefits all aspects of the enterprise. Some customers have central maintenance teams who can execute everything needed for creating business roles for SAP Fiori. Catalog content activation can help you if you want to maintain strict segregation of duties between your UX, Security, and Basis teams. As a result, most organizations apply SoD to only the most vulnerable or mission-critical elements of the business.

What are some common examples of Segregation of Duties?

These real-world examples, highlight the critical importance of effective Segregation of Duties controls. SoD failures can lead to financial crises, regulatory fines, loss of customer trust, and legal actions. Organizations should continuously assess their internal controls and implement strong segregation of duties measures and technology solutions to prevent such incidents and protect their financial stability and reputation. Responsible administrators must consider the principle of segregation of duties when designing and defining job duties. They must implement processes and control procedures that, to the extent feasible, segregate duties among employees and that include effective oversight of activities and transactions. The fundamental premise of segregated duties is that an individual should not be in a position to initiate, approve, and review the same action.

Segregation of duties matrices map activities and duties to roles to identify areas of concern. SOD is a fundamental internal accounting control prohibiting single entities from possessing unchecked power to conceal financial errors or misappropriate assets in their specific role. SOD controls require a thorough analysis of all accounting roles with the segregation of all duties deemed incompatible.

Compliance managers reduce the complexity with a segregation of duties matrix. The matrix enables managers to clearly separate the various roles, responsibilities and risks in the organization. They can also identify potential conflicts and resolve them before any potential damage to the organization occurs.

Segregation of Duties: Examples of Roles, Duties, and Violations

Segregating duties is not an ‘all or nothing concept‘ – you can segregate responsibilities as much as you can and then fill in any gaps with oversight controls. When looking to understand how to apply a SOD matrix to a business process, it’s helpful to use an example. Let’s say we want to examine a purchasing workflow for potential role and duty conflicts.

To confirm efficacy, the documentation of processes to be used for separation of duties should be demonstrable to an outside party. The SafePaaS SoD Insight is designed to quickly and reliably help customers identify segregation of duties risk in their environments. There is now a new task list SAP_FIORI_FCM_CATALOG_ACTIVATION to mass activate apps by Business Catalog. Verification – process that confirms accuracy of accounting transactions, such as appropriate use of ChartFields and that the transaction was recorded in the appropriate accounting period. The software developer is not allowed to test software, push the code to production or make data backups.

Finance and Accounting

Where segregation of duties is not possible or practical, deploy alternative controls. Proper internal controls are essential when ensuring accurate financial reporting and stopping fraud. Organizations should review current processes and controls to isolate possible SoD issues. An in-depth internal control review enables process improvement and makes it possible to isolate unmitigated risks or gaps in controls. With SOX, audit committees and senior executives are accountable for the accuracy of financial statements.

Risks associated with separation of duties

Activating a catalog automatically when it is transported through your environment is possible. You will need to implement BADI CTS_IMPORT_FEEDBACK and mark your catalogs for transport. From SAP S/4HANA 2023 FPS00, there is a change in that ICF nodes are no longer needed for ODataV2 Services. This is temporarily causing some known issues with showing the correct status in the Launchpad Content Manager. You can type/paste in a list of catalogs or select them from the existing catalogs in the system. Allocable – costs incurred specifically for the sponsored program, or incurred for several activities and can be distributed between them in reasonable proportion to benefits received, and are clearly necessary to the program.