What is segregation of duties (SoD)?

The importance of segregation of duties

The basis of SoD is the understanding that running a business should not be a single-person job. No one person should have the power or control to perform any kind of task that may lead to fraudulent or criminal activity that could damage the company. As such, SoD is an important element of both enterprise risk management and compliance with laws such as the Sarbanes-Oxley Act of 2002 (SOX).

SoD helps prevent the abuse of control and unscrupulous activities such as th following:

• Stealing funds from the organization.
• Engaging in corporate espionage.
• Falsifying financial records to satisfy stakeholders, meet earnings forecasts or artificially inflate the company's stock prices.

These and other illegal actions could occur if someone, undeterred by SoD, decided to launch a revenge campaign due to perceived unfair dismissal, demotion or alleged mistreatment. There might be many motivations for unlawful or harmful actions.

Common examples of segregation of duties

SoD is a common concept in financial and accounting processes. It works well and is desirable for payroll.

Another example is in a warehouse, where the person receiving goods from a supplier and the person authorizing payment to the supplier are two different employees. Similarly, the person maintaining inventory records does not physically control the inventory, which reduces the possibility of inventory theft or incorrect reporting.

A third example is within the real estate business, where the person selling a property or other fixed asset to a customer cannot record the sale or collect the payment from the customer. Since a different person is in charge of recording the sale and receiving payment, SoD ensures the person completing the sale cannot take an illegal cut from customers or deny the organization the full revenue from the sale of the asset.

Software development provides another example. A developer creates the code but doesn't have the authority to also deploy it into production. Someone else reviews and approves the code and moves it into production. The idea is to prevent the release of unauthorized code, whether done maliciously or accidentally.

There are some additional SoD applications:

• Transaction authorizations or approvals.
• Receiving and maintaining asset custody.
• Recording transactions.
• Reconciliation activities related to bank statements, checking accounts and booking entries to the general ledger.
• Depositing cash.
• Approving timecards or timesheets.

Organizations can enforce SoD in any financial, IT, cybersecurity, software or other process or function that can have a critical impact on an enterprise's business, revenues, reputation or customer relationships.

The benefits of segregation of duties

Implementing SoD is broadly beneficial for businesses, particularly in financial management, compliance, security, and operational efficiency. Here are some specific benefits of having SoD in place:

• Reduces the risk of internal fraud. By separating responsibilities, SoD makes it more difficult for a single individual to manipulate financial records, misappropriate funds, or engage in fraudulent activities.
• Enhances accountability. When tasks are distributed, employees are more likely to follow ethical business practices, knowing their actions are subject to oversight.
• Protects against conflicts of interest. Employees face a barrier to making unauthorized decisions that could benefit them personally at the organization's expense.
• Ensures accuracy in financial reporting. By distributing financial duties, companies can better ensure that financial records remain accurate and compliant with auditing standards.
• Improves auditing and oversight. Internal and external auditors can more easily identify discrepancies and irregularities in financial and operational activities.
• Reduces errors and mismanagement. When multiple individuals verify transactions and approvals, unintentional mistakes are more likely to be caught and corrected.
• Supports legal and regulatory compliance. Many laws and industry standards, such as SOX and General Data Protection Regulation (GDPR), require organizations to implement proper internal controls, including SoD.
• Minimizes legal liabilities. A well-structured SoD framework reduces the likelihood of noncompliance penalties, fines, and legal disputes related to financial misconduct or security breaches.
• Demonstrates transparency to stakeholders. Investors, customers, and regulatory bodies are more confident in businesses that enforce SoD because it reflects strong corporate governance.
• Reduces the risk of data breaches. By ensuring that no single individual has unchecked access to critical IT systems, SoD limits the chances of unauthorized data manipulation or cyberattacks.
• Strengthens access control policies. Role-based access control (RBAC) ensures that employees only have the necessary level of access to complete their assigned tasks.
• Improves IT governance. By separating responsibilities in software development, system administration, and data management, organizations can prevent unauthorized system modifications or security breaches.
• Enhances trust within the organization. Employees, clients, and stakeholders feel more secure knowing that an organization has strong controls in place.
• Encourages proper workflow management. When tasks are clearly defined and separated, organizations operate more smoothly, reducing bottlenecks and inefficiencies.
• Promotes ethical business practices. A well-implemented SoD framework fosters a culture of integrity, responsibility, and accountability.

Challenges and drawbacks of segregation of duties

SoD is not a panacea. Breaking tasks down into separate components can negatively impact business efficiency. When sacrificing efficiency isn't an option, companies must live with the tradeoff of weaker control and the greater risk of fraud because SoD cannot be implemented or has been reduced.

SoD can also increase costs, process complexity and staffing requirements. As a result, most organizations apply SoD to only the most vulnerable or mission-critical elements of the business. Those are the areas where the risk of fraud and theft is highest and has the greatest chance of negatively impacting the organization's finances, security, reputation or compliance posture.

Moreover, smaller organizations might find it more difficult to accomplish SoD because there are fewer people available to take on different parts of a task. In small companies, one person might handle an entire process, such as payroll, where a single employee handles both accounting and check sign-off.

Noncompliance in segregation of duties

Alongside the challanges associated with segregation of duties are two important areas of noncompliance, they are: SoD conflicts and SoD violations.

Segregation of duties conflicts

SoD conflicts arise when an individual has overlapping roles that could accommodate misconduct. For example, an employee with access to financial records and payment approvals could engage in fraudulent transactions.

Segregation of duties violations

An SoD violation occurs when an employee circumvents established controls and performs unauthorized actions. For instance, a finance officer responsible for approving payments alters financial statements for personal gain.

An organization might have a rule that the person approving timesheets is not allowed to also distribute paychecks. But when someone takes advantage of a control weakness to do both activities for fraudulent purposes, it's an SoD violation.

Consider a senior leader, such as a chief executive officer or chief financial officer, manipulating financial statements in violation of SOX regulations. When discovered, this can result in hefty fines for the company and a prison sentence for the employee.

Best practices for implementing SoD

To ensure a comprehensive SoD framework, organizations should follow these best practices:

• Use RBAC. Restrict access to sensitive operations based on user roles.
• Conduct regular risk assessments. Scheduled, periodical risk assessments help identify potential SoD conflicts and violations.
• Implement audit trails. Maintain logs for all critical transactions to ensure accountability.
• Use automated SoD monitoring tools. Leverage software to detect potential breaches in real time.

The segregation of duties matrix

Implementing SoD can be a complex endeavor. Compliance managers reduce the complexity with an SoD matrix. The matrix enables managers to clearly separate organizational roles, responsibilities and risks. They can also identify potential conflicts and resolve them before any potential damage occurs.

The matrix plots user roles on the X and Y axes to clearly show SoD conflicts. It also maps activities and duties to roles in the workflow to help compliance teams segregate incompatible duties.

Table 1 is an example of an SoD matrix for an employee compensation process where a checkmark signifies that the role has responsibility for the task.

Table 1. An SOD matrix.

In Table 1, the person in charge of hiring employees cannot also oversee changing compensation or creating paychecks. Similarly, the person in charge of changing benefits cannot hire employees.

Table 2 offers an SoD matrix for a software development process.

Table 2. SoD matrix for software development.

As shown in Table 2, the software developer is not allowed to test software, push the code to production or make data backups. Similarly, the person who pushes code to production cannot carry out the other three tasks.

Organizations can create SoD matrices by hand or with spreadsheet software such as Excel. However, they are most commonly generated automatically using enterprise resource planning (ERP) software.

ISACA's approaches to SoD matrices

Diagrams and flowcharts provide a good level of detail in SoD matrices. But sometimes these representations don't correctly match employee tasks, making it harder to identify role/activity inconsistencies or potential SoD conflicts. ISACA suggests two options to create more detailed and useful SoD matrices:

1. Group or delete activities.
2. Keep all activities and clearly label all SoD conflicts.

Option 1 reduces the size of the matrix and enables personnel to focus on potential SoD conflicts. The downside is that it can introduce errors and false positives, which might affect the SoD analysis and its outcomes. Option 2 creates a potentially huge matrix but provides a more accurate visual representation of existing processes and personnel roles and activities.

Future trends in SoD

Automation, AI and cloud computing are transforming how SoD is enforced. AI-powered fraud detection and predictive analytics are becoming essential for real-time risk assessment, reducing manual oversight and improving accuracy. Similarly, ERP and GRC software are automating SoD enforcement, ensuring compliance with minimal human intervention.

The rise of remote work and cloud-based systems presents new SoD challenges, leading organizations to adopt zero-trust security models and advanced identity access management (IAM) solutions. Additionally, regulatory scrutiny is increasing, with global financial and cybersecurity laws demanding stricter internal controls and financial transparency.

Emerging technologies like blockchain and smart contracts are also shaping the future of SoD by creating immutable audit trails and automating transaction approvals. Meanwhile, SoD-as-a-Service (SoDaaS) solutions are growing, allowing businesses to outsource real-time SoD monitoring and compliance management.

As security risks and regulations continue to evolve, companies must stay proactive in modernizing their SoD frameworks to maintain compliance, security, and operational efficiency.

The use of Industry 4.0 tech in retail, logistics and manufacturing is expanding. Learn about the benefits of AI and other Industry 4.0 tech. Also, learn about compliance and its related security concerns and see how to negotiate zero-trust challenges by running trials, starting small and scaling slowly.