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Why Separating Duties In Your Accounts Payable and Receivable Processes Will Reduce Fraud


According to the American Institute of Certified Public Accounts (AICPA), “segregation of duties is a basic building block of sustainable risk management and internal controls for a business.” The goal of segregation of duties (SODs) is to eliminate the chances that a person could steal or participate in other fraudulent activities. The framework is set in 3 main buckets:

  • Physical custody of an asset

  • Record keeping for the asset

  • Authorization to acquire or dispose of the asset

Concerning collections and expenses in the accounting process, there are three main activities:

  • Verifying patient account and balance to post payment to

  • Entering the data

  • Depositing funds to bank account or initiating payments

It is recommended the following duties have separate people accountable to sufficiently reduce the risk of fraud for revenue and collections:

  • Opening mail and sorting bills

  • Posting payments to the billing system

  • Making deposits to the bank

  • Recording write-offs and adjustments

  • Bank reconciliation and write-off/adjustments review

Similarly, the recommendations for accounts payable and expenses are:

  • Opening mail and sorting bills

  • Entering bills into accounting software and preparing/printing checks for signature

  • Reviewing check supporting documentation and signing checks

  • Preparing/reviewing bank reconciliations

While these measures do not eliminate the risk of fraud, they significantly reduce it. In a cost/benefit analysis, they are the best controls for the resources required to implement them.

To further increase the effectiveness of these duties, employees can be cross trained to perform different duties and rotated periodically throughout the year.

Some organizations may not have the depth in staff numbers to allow for each of these duties to be separated. In such instances, an owner should step into needed roles so that no one employee is responsible for more than one of the duties mentioned.


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