How does segregation of duties reduce risk?

Segregation of duties reduces risk by dividing responsibilities among multiple individuals. This practice is fundamental in internal controls, as it helps prevent fraud and errors by ensuring that no single individual has control over all aspects of a financial transaction. When tasks are distributed among different people, it becomes much harder for any one person to manipulate or exploit the system without collusion.

This separation creates checks and balances, where one person's work serves as a check on another's. For example, if one person is responsible for authorizing payments and another person is in charge of processing those payments, this separation mitigates the risk of unauthorized transactions occurring without detection. Effective segregation of duties increases accountability, enhances the integrity of financial operations, and ensures compliance with regulatory requirements.