What is the main purpose of separation of duties in accounting?

The main purpose of separation of duties in accounting is to minimize the risks of unauthorized or improper activities. This principle is a key internal control mechanism designed to prevent errors and fraud. By dividing responsibilities among different individuals, such as separating the roles of authorization, record-keeping, and custody of assets, organizations can create a system of checks and balances. This makes it more difficult for any single individual to commit and conceal fraudulent activities, as their actions would require collusion with others, thereby increasing the likelihood of oversight and detection.

The effectiveness of this practice lies in its ability to create accountability. Each individual involved in a financial transaction is responsible for specific tasks, which not only reduces the risk of fraud but also enhances the accuracy and reliability of financial reporting. The emphasis is on safeguarding assets and ensuring compliance with regulations, which is crucial for organizations, especially in the context of FDIC regulations and standards.