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. Timekeeping and preparation of payroll journal entries are two duties that can be done by the same person. Preparation of payroll journal entries is creating the entries to the accounting system that are used to record the payroll. It does not involve writing the payroll checks. So a person who records time for others can also create the entries to record the payroll in the accounting system, because there is nothing in those two duties that would give that person any additional opportunity to commit fraud and also cover it up.
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 the person who has custody of blank payroll checks has the authority to sign paychecks, that person could write a check to anyone at all and sign it, and no one else would see it. Furthermore, the following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. In the example of the combination of signing paychecks and custody of blank payroll checks, the custody of the payroll checks (which by themselves are not assets) is a recordkeeping function, whereas the signing of the payroll checks is a custodianship function. Thus, these two jobs should be performed by different people.
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. A person who approves time cards and also prepares the paychecks could approve hours that an employee had not worked and then pay that employee. No one else would be looking at the paychecks or the backup to the paychecks. Therefore, the opportunity to commit fraud would exist. Furthermore, the following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. In the example of the combination of approval of time cards and preparation of paychecks, approval of time cards comes under the classification of authorizing a transaction, whereas preparation of paychecks is classified as recordkeeping. Thus, these two jobs should be performed by different people.
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 paychecks and also distribute them, no second person would have a chance to see them before they were distributed. The opportunity would exist to commit fraud without anyone noticing. Furthermore, the following four functions must always be done by different people: (1) Authorizing a transaction; (2) Recording the transaction, preparing source documents, maintaining journals; (3) Keeping physical custody of the related asset - for instance, receiving checks in the mail; and (4) The periodic reconciliation of the physical assets to the recorded amounts for those assets. In the example of the combination of preparation of paychecks and check distribution, payroll preparation is a recordkeeping function, whereas the distribution of payroll checks is a custody function. Thus, these two jobs should be performed by different people.
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