BILL.COM BLOG

How the Separation of Duties Protect Your Company’s Finances

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Separation of Duties

According to the Association of Certified Fraud Examiners (ACFE), businesses lost a median amount of $150,000 due to fraud in 2016, and 60% of small businesses never recovered their losses. Most companies would suffer severe repercussions with a loss that size such as impaired cash flow, hindered payroll, inability to order product and more.

There are, however, two simple ways companies can proactively deter fraud: the separation of duties and ACH payments. In this blog post, we’ll explore how you can deploy these efforts to protect your business.

Occupational Fraud

The top risks for fraud, according to the ACFE, include corruption, billing schemes, check tampering and skimming—all activities that employees can easily incorporate within many small businesses.

Why do employees steal money from a company? Many times, companies make it easy for them to do so.

Internal fraud thrives on three elements:

1. A lack of embedded processes: Every business should have documented procedures for accounting tasks and require their employees to follow these processes.

2. Lax digital and physical security: Access to financial information should be limited or tiered based on the role of the employee. Passwords should never be shared. Check stock should never sit in the open or in unlocked drawers.  

3. Lack of oversight: Consistent financial control such as internal or external edits and more can detect fraudulent activities. Business finances are never an area where you want to “set it and forget it.”

The Separation of Duties

The separation of duties (also known as segregation of duties) represents a simple process with a substantial impact. Simply put: Not one person fulfills all bookkeeping or accounting functions. The financial process is sliced and diced among multiple stakeholders to deter fraud and errors. This method forces a system of checks and balances.

If you have the same person handling financial transactions (such as paying a bill) and recording the transactions, that person has a much easier path toward fraudulent activities. He or she can misappropriate money and then record numbers that support that misappropriation. For example, that person can say they paid a bill but then pocket the money themselves. They then record a payment to the vendor in their books so it supports their claim.

But when you separate the duties (one person handles the financial transaction and another records that transaction), it deters fraud. Now, two individuals have to collaborate to perpetrate the theft which substantially decreases the likelihood of that happening.

What is an ACH Payment?

ACH, a digital payment form that is akin to to eChecks (but faster), stands for Automated Clearing House. An ACH payment travels directly from one banking account to another via a secured electronic network. In fact, the ACH network handled more than 5 billion payments in the first quarter of 2016.

Payments often complete within a day, making them fast and efficient. Since payment debits directly from your banking account, it creates a cleaner, real-time representation of your company’s cash flow.

Vendors often appreciate ACH payments the process is entirely digital. There’s no need to wait for a check to mail, make bank runs or count down the days until the checks clear.

ACH Payment and Software to Support the Separation of Duties

Enforcing the separation of duties with paper-bound processes limits the extent of its effectiveness. Paper limits transparency, can be easily manipulated, stolen or destroyed and often slows down critical processes.

Moving to ACH payments and solutions that support them can vastly amplify the results of separation of duties.

First, digital bill payment systems for businesses support and automate your company’s workflow. You can map out the process based on your company’s guidelines (for example, bills $500 or less must go through one process while bills for more than $500 go through another) and it will digitally shepherd each bill through the correct line of review and approval.

Second, the cloud-based solution offers permissions-based access. That means an employee is authorized to access the vendor invoice to approve the payment, but won’t be able to pay the bill. If an unauthorized individual obtains the email or link to the review process, he or she will be barred from accessing it. This construct ensures the proper process and separation of duties.  

Third, moving to digital payments such as ACH eliminates the need for paper check stock in an office (and thus reduces the risk of fraud.) Payment is also sent through the bill payment solutions’ own account further shielding your sensitive banking information (account number and routing number) from prying eyes.

Fourth, reputable bill payment solutions integrate with leading accounting solutions such as QuickBooks, Xero, Netsuite, and Intacct. This integration allows for automatically syncing between systems while reducing manual data entry and its higher proportion of errors.

Finally (and most importantly), the solution tracks each transaction automatically. For example, two months ago you paid company XYZ $1,000. With this solution, you can log in and quickly ascertain when the invoice entered the system and which individuals reviewed, approved and paid it. You can even access an image of the check associated with the payment. This creates a transparent and audit-ready financial environment for your business.

Are you ready to protect your business?

Bill.com

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Stephanie Aparicio
Director of Payment, Risk & Compliance Operations, Bill.com
Stephanie is the Director of Payment, Risk & Compliance Operations at Bill.com. She has 15 years of experience in the Fintech industry and over 7 years in Fraud Risk. When she's not fighting internet crime, Stephanie enjoys doing all things sports with her two boys.