From 9b1edf208ab2044ca868db029016c43784c7180b Mon Sep 17 00:00:00 2001 From: colettelenihan Date: Thu, 22 Oct 2026 03:58:43 +0000 Subject: [PATCH] Add What is segregation of duties: Keep payment approval separate --- ...uties%3A-Keep-payment-approval-separate.md | 109 ++++++++++++++++++ 1 file changed, 109 insertions(+) create mode 100644 What-is-segregation-of-duties%3A-Keep-payment-approval-separate.md diff --git a/What-is-segregation-of-duties%3A-Keep-payment-approval-separate.md b/What-is-segregation-of-duties%3A-Keep-payment-approval-separate.md new file mode 100644 index 0000000..afa43d0 --- /dev/null +++ b/What-is-segregation-of-duties%3A-Keep-payment-approval-separate.md @@ -0,0 +1,109 @@ +
What is segregation of duties? It is the practice of splitting a sensitive task among people so one person cannot control every step. For a payment, one person might enter the bill, another approve it, and a third release the funds. The right split depends on your team’s size, payment risks, and ability to review work independently.
+ +Separate the decision to pay from the work of paying + +
Payment approval should belong to someone who can judge whether the bill is legitimate and appropriate, not just someone who can process it. Think of a household budget: one person may gather the bills, but the person choosing whether the family can afford a large purchase should see what it is for and what else is due.
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In a company, paying a vendor usually involves several distinct actions. Someone receives or enters the invoice, someone confirms that the goods or services were authorized and received, someone approves the amount, and someone sends the payment. A later review checks that the accounting records and bank activity agree.
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The control is strongest when different people handle steps that could otherwise conceal an error or misuse of funds. If one employee can create a vendor, record an invoice, approve it, send the money, and reconcile the bank account, that employee may be able to make an improper payment and make it harder to spot.
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Separation does not mean every small bill needs a committee. It means deciding which actions carry enough risk to require another person’s judgment or review. A recurring utility bill may need less scrutiny than a new vendor requesting a large wire payment, especially if the payment details changed unexpectedly.
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For a first-time founder, the practical question is not whether the company has a formal finance department. It is whether anyone can move money without another person seeing the reason, checking the supporting records, or noticing a change in the bank activity. The answer should shape the approval process.
+ +Map the steps before assigning approval + +
A useful payment process begins with a map of what actually happens, from the first request to the bank reconciliation. Write down who requests a purchase, who chooses the vendor, who confirms delivery, who enters the bill, who approves it, who releases the payment, and who reviews the bank statement.
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That map often reveals informal handoffs. A founder may approve a purchase in a chat, while a bookkeeper later enters an invoice and schedules the payment. If no one records the approval with the invoice, a reviewer may not know whether the expense was authorized or whether the payment matches the agreed terms.
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For each step, note what evidence should exist. An invoice may support the amount, a purchase order or written approval may support the commitment, and a receipt or delivery confirmation may show that the company received what it paid for. Not every business needs every document, but the reason for payment should be traceable.
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Next, identify actions that can change the destination or amount of money. Creating a vendor, editing bank details, changing an invoice, approving a bill, and releasing a payment are not interchangeable tasks. A process that separates only "accounting" from "management" can still leave one person with too much control over a specific transaction.
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Keep the map practical. If your team is small, you may not be able to assign every step to a different employee. You can still make the process clearer by separating the initial approval from payment release, requiring a second person to verify bank-detail changes, and arranging an independent review of reconciliations.
+ +Choose who approves based on what the bill means + +
The approver should understand the business reason for the expense and have authority to commit the company’s money. A department lead may confirm that a service was needed, while a founder or finance lead checks that the payment fits the company’s cash plan and spending rules.
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Approval is not the same as checking arithmetic. The approver should be able to answer basic questions: Was this purchase requested? Did the company receive the product or service? Does the amount match the agreement? Is the vendor and payment method expected? If those answers are unclear, the bill should be held for clarification.
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A bookkeeper can organize invoices, enter transactions, and prepare payments without being the person who decides whether the company should spend. A controller often oversees the accuracy and consistency of accounting processes. A [part-time CFO rate in New York City](https://venturegrowthpartners.com/locations/new-york-new-york-city-part-time-cfo-services/) focuses on financial decisions and direction. In a small company, one person may perform several of these functions, so the approval boundaries still need to be explicit.
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For example, a team lead might confirm that a contractor completed the agreed work, while the founder approves the cost and a bookkeeper enters the bill. The person who releases the payment could be the founder or another authorized employee, but someone independent should later compare the payment with the approved invoice and bank record.
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Approval authority should also match the purchase. The person responsible for a project may be well placed to confirm that a project expense is valid, but may not know whether the company can afford its timing. A finance lead can assess cash timing, yet may need the project owner to confirm that the work was delivered.
+ +Set a different check for new vendors and changed details + +
New vendors deserve a clearer check because the company may have little history to compare against. Before payment, someone other than the person entering the vendor should confirm who requested the relationship, what the vendor is providing, and whether the payment instructions came through a trustworthy channel.
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A change to a familiar vendor’s bank details also deserves separate verification. Do not rely only on the email or invoice that announced the change, especially if the request is unexpected. Use a previously established contact method to confirm the instructions with a known representative, and document who made that check.
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The person who changes vendor details should not be the sole person who approves and releases the resulting payment. If the team cannot separate all three actions, a second person can review the change before the next payment and examine the bank confirmation afterward. The point is to create a check that does not depend on the same source of information.
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Payment approval can include a brief review of the invoice, the original authorization, and the destination account. For an unusual or urgent payment, the approver can ask why the timing changed and whether the business owner independently confirms the request. Urgency may be genuine, but it should not remove the verification step.
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Keep evidence of the check with the vendor record or payment documentation. A note showing the date, the person who verified the change, and [part-time CFO rate in New York City](https://venturegrowthpartners.com/locations/new-york-new-york-city-part-time-cfo-services/) the method used gives a later reviewer something concrete to inspect. Avoid storing sensitive banking details in broadly accessible notes; keep access limited to people who need it.
+ +Fit the process to a small team without pretending duties are separate + +
A small company may have only a founder and a bookkeeper, so full separation is not realistic. The useful distinction is between tasks that one person performs and checks that another person can actually make. Calling a process "approved" does not create a control if the reviewer never sees the bill or cannot question the payment.
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If the founder approves bills and releases payments, the bookkeeper might prepare the payment batch and reconcile the account, while the founder reviews the reconciliation and supporting documents. Alternatively, an outside accounting professional may prepare reconciliations for a founder who does not process the daily transactions. Choose a review arrangement that fits the records and access available.
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Technology can help route approvals and preserve a record of who acted, but software settings do not replace judgment. Check whether the same user can create a vendor, edit its bank details, approve a bill, and release funds. Review who has administrator access and whether former employees or temporary users still have permissions.
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When one person must handle several steps, add a compensating check that happens after the transaction or before money leaves. A second approver can inspect supporting documents, or an owner can compare bank transactions against invoices and approvals. The reviewer needs enough information and part-time CFO rate in New York City independence to spot something wrong, not just confirm that a box is checked.
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Be honest about the limitation: a review performed by someone who lacks time, context, or access may catch obvious mistakes but cannot provide the same protection as dividing responsibilities. If payment volume, transaction size, or staff access grows, revisit the arrangement instead of assuming the original informal process remains adequate.
+ +Use a simple approval path for a typical invoice + +
A workable path makes each handoff clear. The employee requesting a purchase explains the business need, the responsible manager approves the commitment, and the person confirming delivery checks that the company received what it ordered. The bill then goes to accounting for entry and matching against those records.
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The designated approver reviews the invoice and supporting information before authorizing payment. That person should resolve differences in amount, vendor, or terms rather than asking accounting to guess. Once approved, an authorized payment preparer schedules the transaction, and a separate person releases it when the company’s staffing and banking setup allow.
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After payment, the transaction is recorded and matched to the bank activity during reconciliation. The reviewer checks that the amount and payee agree with the approved bill and that unusual items have an explanation. If the person doing the reconciliation also entered and paid the invoice, an owner or another qualified reviewer should examine the work.
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For a recurring bill, the company can document the expected vendor, service, and payment pattern. A change in amount, frequency, or destination should prompt a fresh review rather than passing automatically because the vendor name is familiar. Repeated payments still need to match the underlying agreement and current business need.
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Keep exceptions visible. If a payment bypasses the normal path because of a genuine deadline, record who authorized the exception, why it was necessary, and what review will follow. A process that allows undocumented exceptions can become the real process, leaving the written approval steps irrelevant.
+ +Set approval limits around responsibility and cash needs + +
Approval limits clarify who can commit company funds and when another person must weigh in. The limits should reflect the company’s spending authority and cash position, not an arbitrary rule copied from a larger business. A founder might approve ordinary operating costs, while an unusual commitment or a purchase that affects planned cash needs gets an additional review.
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Separate approval of a purchase from approval of its payment. A manager may authorize a software subscription because the team needs it, but accounting still needs to confirm that the invoice matches the agreed terms. If the vendor later changes the amount or billing schedule, the original approval may no longer cover the new commitment.
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Think of the company’s cash plan as the household budget. A bill can be legitimate and still arrive at a difficult time, such as the week payroll and tax payments are due. A finance lead or founder who monitors upcoming cash needs can flag timing concerns, while the person who received the service confirms that the expense is valid.
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Write down what happens when a payment falls outside someone’s authority. The request should go to a named approver before it is scheduled, and the approval should be saved with the invoice or purchase record. If two people share authority, make clear whether both must approve or whether either one can act.
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Limits need review when the company changes its spending pattern, adds departments, or takes on new obligations. A rule that works for routine office expenses may not fit a large equipment purchase or a recurring service with a long commitment. The aim is to bring a knowledgeable person into decisions that can materially affect the business.
+ +Make approval evidence useful to the next reviewer + +
An approval record should show what was approved, by whom, and before which action. A short note attached to the invoice can identify the business purpose and point to the relevant request or agreement. A vague "looks good" in a separate message may leave the next person guessing about what the approver actually reviewed.
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Keep the supporting records together when practical. The invoice, purchase authorization, confirmation of delivery, and payment confirmation tell a clearer story as a group than as scattered messages. If the company uses an accounting system, use its approval history or attachments when they preserve who acted and when.
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Do not treat a system status as proof that the approval was thoughtful. A click may show that someone approved a bill, but not whether the person had the authority, checked the amount, or knew the service had been received. For unusual transactions, a brief explanation can make the decision easier to understand later.
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Access matters too. Staff should be able to see the records needed for their role without giving every user broad access to vendor banking information or payment administration. Review permissions when someone changes jobs or leaves, and make sure a temporary substitute does not retain access after coverage ends.
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Good documentation saves time when a question comes up during a month-end close, an audit, or a review of company spending. It also helps a new employee follow the process without relying on unwritten habits. If the trail cannot explain why money left the account, [part-time CFO rate in New York City](https://oukirilimetodij.edu.mk/question/difference-between-cfo-and-director-of-finance-for-a-nyc-firm/) the company may need clearer approval steps even when no error occurred.
+ +Decide whether the control is working by tracing a payment + +
The best test is to select a completed payment and follow it from request to bank record. You should be able to find the reason for the purchase, evidence of approval, confirmation that the company received what it bought, the invoice entry, payment details, and a later review of the bank activity.
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Check whether the people named in the process did the work in practice. An approval recorded after the payment may be documentation, not advance authorization. A bank reconciliation that contains only a signature but no review notes may not show whether anyone compared the transaction with its supporting records.
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Ask whether a single person could change the vendor destination and send money without a meaningful second check. Then consider whether the reviewer has the knowledge and access to notice that change. If the answer is yes, reduce that person’s permissions or add a specific independent verification before payment.
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Revisit the arrangement when the company adds employees, changes accounting systems, starts paying vendors in a new way, or gives more people access to banking. A control designed for a handful of monthly bills may not fit a busier operation. The process should change when the work or the risk changes.
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For a first-time founder, the goal is a payment trail that another person can understand without relying on memory. If you can see who requested the expense, who judged it appropriate, who sent the money, and who checked the result, approval is separate enough to make review meaningful. If those roles collapse into one person, add the strongest independent check your team can sustain.
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