Segregation of duty implies a number of people being involved in the accounting process. This is important for a number of reasons such as:
It makes it more difficult for fraudulent transactions to be processed (since a number of people would have to collude in the fraud).
It is also more difficult for accidental errors to be processed (since the more
people are involved, the more checking there will be).
In corporate governance segregation of duties will normally relate to the issue of independence and avoidance of conflict of interest. Examples
- The separation of the roles of Chairman and Chief Executive Officer
(CEO). This avoids the risk of conflict of interest.
- Non-executive directors have no executive (managerial) responsibilities.
They independently scrutinise the accuracy of financial information.