Which of the following is an example of segregation of duties?

• A. One employee handles recording and custody of assets.
• B. Management approves and records transactions.
• C. Separate authorization of transactions from recording and custody of assets.
• D. All employees have access to the accounting system.

Answer: (C)

Segregation of duties means dividing responsibilities so that no single person has control over all parts of a transaction, creating a system of checks and balances that helps prevent errors and fraud. The best example is separating the authorization of transactions from the recording and from the custody of assets. When the person who approves a transaction is different from the person who records it and from the person who holds the assets, there’s a built-in review step and reduced opportunity for misstatement or theft. In practice, one person would authorize, another would input or record the transaction, and a third would handle the assets, creating independent cross-checks.

The other scenarios mix duties in ways that undermine this control: having one employee both record and custody assets, having management both approve and record transactions, or giving all employees access to the accounting system all enable concealment or manipulation without independent verification. The separation described in the favorable option is the core approach to enforcing segregation of duties.