Answer to Question #320042 in Microeconomics for Jen

Question

Explain the association of the following diagram (hints: the association has directions; from sales order to customers, and from customers to sales orders)?

What is segregation of duties and why internal controls need segregation of duties?

Answer 1

This is a highly significant internal control in an organization since it assures that no employee or management may be involved in fraud while performing their duties, and it also helps to reduce errors.

Internal control in a business that protects financial transactions against fraud and errors is known as segregation of duties. To do this, the Department of Defense ensures that at least two persons are in charge of carrying out a critical task with financial repercussions or the ability to alter financial reporting. Work is divided into multiple jobs that can be completed by a single person using SoD techniques. By splitting the transaction into two or more components or requiring sign-off approval from another party before it is completed, the goal is to keep control out of one person's hands.

The principle behind Segregation of Duties is that the responsibilities of running a corporation should be dispersed among many people so that no one individual has the power to hurt the company or engage in fraudulent or illegal actions. Task separation is an important part of risk management and is linked to SOX compliance.