What is segregation of duties and give an example relevant to treasury?

• A. Centralizing all steps in one person.
• B. Splitting responsibilities so the payer and record keeper are separate individuals.
• C. Outsourcing all treasury activities.
• D. Combining authorization and custody.

Answer: (B)

Segregation of duties means ensuring that no single person controls all parts of a financial process, so checks and balances exist to prevent errors or fraud. In treasury, this often means splitting key tasks like initiating payments, authorizing them, and recording them in the books so different people handle different steps.

The best example is having the payer and the record keeper be separate individuals. This way, the person who approves or initiates a payment isn’t the same person who enters the payment into the accounting system, which helps catch mistakes and reduces opportunity for wrongdoing.

If duties are centralized in one person, or if authorization and custody are combined, or if activities are outsourced in a way that removes internal checks, the control environment weakens and risks rise.