Trust is not an internal control; segregating duties is

Sally is a new cashier for the county's district court. On her first day, she pockets some cash and posts an adjustment to the customer's account. No one notices, so she does it again the next day and the one after that. No one is reviewing her work, so days turn into years, and what started as a petty theft turns into a multi-thousand dollar fraud.

You might be thinking this could never happen in your government. Unfortunately, this scenario is based on a true story, and it happened to a local government here in Washington. In this case, the fraud was eventually detected and the woman was prosecuted.

But what responsibility does the local government bear? While the woman clearly stole, her employer failed to design an internal control system that protected the government's assets. This fostered an environment where the employee could steal, undetected, for years.

Trusting your employees is important, but you should also be verifying they are doing their work properly because trust alone isn't a sufficient control for preventing loss. One of the best ways to protect your government's assets—and your employees—is to segregate duties. If this this isn't possible, you should develop adequate monitoring to help mitigate conflicting duties.

Our example describes a cash handling fraud, but segregating duties is critically important to all your financial systems, which is why SAO often makes audit recommendations on this topic. You have a lot to consider when developing your internal control system, so we've created a collection of guides, checklists and articles to help you.

• Segregation of Duties guide — This reference guide provides detailed information on how to segregate conflicting duties for each of your financial systems. It also provides options to build in compensating controls when you cannot segregate duties. If you're a small government, you'll find examples for small organizations in Appendix A.

• Self-assessment Checklist — This companion to the Segregation of Duties Guide helps you assess your government's internal controls. If you're unable to segregate duties, the tool prompts you to consider compensating controls and whether they are sufficient to mitigate risk.

• Think you're too small to segregate duties? Let's find out! — This blog post focuses on how governments with smaller staffs can segregate duties. It also discusses how to choose oversight procedures when duties can't be segregated.

• Larger governments struggle with segregation of duties, too — This blog post discusses the various challenges larger local governments face in segregating duties, as well as what they should do about it.

For help

Remember, we are here to help. If you have specific technical accounting questions, please submit them using our HelpDesk in the client portal.

We also have financial management specialists at SAO's Center for Government Innovation available to talk with you about best practices, resources or internal controls. For assistance, reach out to us at Center@sao.wa.gov.