Lessons · Accounting · why one person should not do all of it
Why one person should not do all of it
The steps of a transaction -- authorising it, executing it, holding the asset, and recording it -- should not all sit with one person. Where they do, that person can both take something and make the records agree.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
It is the single most effective control there is and the hardest to apply in a small organisation, where one person genuinely does everything. That does not make it unavailable: compensating controls exist, and the smallest useful one is somebody else opening the bank statement.
How to think about it
For each process, list who authorises, who executes, who holds the asset and who records. Where two or more land on one person, that is the exposure, and either separate them or add a check by somebody outside the process.
Worked example
Authorise, execute, hold, recordThe four steps to keep apart.
One person holding all fourCan take it and make the records agree.
A small organisation cannot always separate themWhich is why compensating controls exist.
Somebody else opens the bank statementThe cheapest useful control there is.
Your turn
Name the four steps that should not all sit with one person.
Authorise, execute, hold and
Solve one, graded on the server
The trap
Concluding that segregation is impossible in a small business and doing nothing. The alternative to perfect separation is a compensating check, not an absence of controls, and an owner who opens the post themselves has done most of the available work.