The rule in segregation of duties is that one person should not be in a position to commit fraud and also to cover it up. If one person were to prepare the payroll and also distribute the paychecks, no second person would have a chance to see them before they were distributed. The opportunity would exist to commit fraud without anyone noticing.
The rule in segregation of duties is that one person should not be in a position to commit fraud and also to cover it up. It would be appropriate for the person who prepares the payroll to also maintain year-to-date records. There is nothing in these two duties that would give one person doing both of them an opportunity to commit fraud and also to cover it up. Furthermore, payroll preparation and maintenance of year-to-date records are both recordkeeping functions and for that reason, they are not incompatible. It is acceptable for both functions to be performed by the same person.
The personnel function is an authorization function, whereas payroll preparation is a recordkeeping function. These two functions are incompatible and should be separated.
Separation of timekeeping from payroll preparation is required for internal control purposes because a person doing both jobs could enter fraudulent hours for an employee and then also do the input and prepare the paycheck to pay that employee for the fraudulent hours. The rule in segregation of duties is that one person should not be in a position to commit fraud and also to cover it up, which can happen if there is no second person involved in the process, looking at the timekeeping data.
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