Overcoming Segregation of Duties Challenges

March 18, 2025

How To Maintain Effective Controls With Limited Resources

Maintaining segregation of duties (SoD) is crucial for preventing fraud and errors in any organization, but it becomes particularly challenging in smaller companies with limited accounting resources. When the main accountant has master access to the general ledger, it increases the risk of financial mismanagement. However, even in these situations, several strategies can help maintain effective controls and prevent a material weakness in your internal control environment.

1. Role-Based Access Control

Even when there’s only one person handling accounting, role-based access control is essential. While the accountant may need full access to the general ledger, tasks like check writing, payment approval, and payroll should require additional oversight. If the accountant handles these activities, an independent person, such as the restaurant owner or another member of management, should review and approve these transactions. Restricting access to certain functions reduces the opportunity for fraud and errors.

Below are some examples of how to mitigate segregation of duty issues surrounding disbursements:

- A restaurant owner reviews all check disbursements and manually signs all checks. It is important for the owner to monitor the check number sequence for completeness by keeping a log of the check number sequences reviewed each check run. Once checks are signed, these checks could be handed off to another person outside of accounting to mail to prevent any alterations by the accountant prior to being sent.
- A restaurant owner reviews the daily bank activity and spot checks cleared checks by asking for the underlying invoice and manager approval. This review needs to be consistently performed so the accountant knows that proper monitoring is in place.
- A restaurant owner reviews the positive pay listing of checks to be disbursed before submission to the bank to detect any unknown vendors or unexpected payments.
- A restaurant owner reviews the vendor management change report and payroll change report to identify unexpected changes or unknown names.

Whomever is chosen to perform this review should only have read only access to the general ledger, if any access is given, to properly segregate duties.

2. External Oversight and Periodic Reviews

In small companies, external oversight is crucial. While the accountant has full access to financial records, it’s essential for someone independent of the day-to-day operations to review these records. This could be the restaurant owner or another member of management. The accountant should submit the general ledger, balance sheet reconciliations, and financial reports for review on a monthly or quarterly basis. This ensures any discrepancies or inconsistencies are identified early and that the financial records are accurate and compliant with best practices.

- Management should conduct a detailed review of the general ledger at the transaction level, performing spot checks to ensure transactions are properly approved and supported, and identifying any anomalies or unexpected items.
- Management should examine the balance sheet accounts and related reconciliations to confirm that accounts are accurately reconciled, reconciling items are reasonable and resolved promptly, and that fluctuations in balance sheet accounts are consistent with prior period-end and the same period end of the previous year. Consistency is not always expected so long as a change in balance is expected.
- Management should analyze the profit and loss statement each period, comparing it to the budget and the same period end of the previous year. Year-to-date results should also be reviewed and compared to the budget and year-to-date figures of the previous year. Any unexpected variances should be promptly investigated to identify potential issues.
- Management should compare sales reported from the POS to the profit and loss statement for overall consistency. Likewise, the payroll register can be compared to labor expense on the profit and loss statement for overall consistency and reasonableness.

3. Automating Financial Processes

Automation can significantly reduce errors and improve efficiency. Many restaurant POS (Point of Sale) systems integrate directly with accounting software, automatically recording sales, tips, and inventory changes. This reduces the need for manual data entry and ensures more accurate financial records. Automating transactions like payment approvals can also reduce the risk of mistakes by requiring approval from someone other than the accountant before payments are processed. Many accounts payable automation software now eliminate manual invoice input and ensure proper approval before payment.

4. Reconciliation of Cash and Bank Accounts

Reconciliation is a key control in any restaurant accounting process, especially when cash is involved. The accountant should regularly reconcile cash receipts, bank deposits, and credit card transactions. This should occur weekly or more often, depending on the volume of transactions. Having an independent person, such as a manager, review and confirm these reconciliations ensures that discrepancies are caught early and any issues are addressed promptly. This key control is important as it is often a source of bookkeeping issues for many restaurant companies that do not prioritize it.

5. Cross-Training Staff

Cross-training managers or staff in basic accounting tasks, such as inventory tracking and cash handling, adds oversight and ensures financial processes are followed. It provides continuity when the accountant is unavailable and aids in maintaining oversight even in small teams. Though there may be resistance, understanding the importance of maintaining accounting integrity and preventing fraud is crucial for timely management intervention.

Conclusion

Even with a single employee responsible for accounting, a company can maintain proper segregation of duties by using role-based access controls, engaging in regular reviews, automating processes, reconciling accounts, and cross-training staff. These steps help protect against errors and fraud, ensuring the company’s financial integrity.

If you have any questions or would like to discuss your current internal control environment, contact Dustin Minton or your GBQ team.

By Dustin Minton, CPA, MBA, Director, Assurance & Business Advisory Services