One of the most basic rules in accounting control isn't about catching a clever fraud after it happens. It's about not needing to catch it in the first place, by making sure no single employee ever controls an entire financial transaction from start to finish.
Splitting a transaction into pieces nobody can do alone
Segregation of duties means dividing responsibility for authorising a transaction, recording it, and having custody of the related assets among different people, so that committing fraud or covering a genuine error requires collusion between multiple employees rather than the unchecked judgement of one. The classic example: the person who requests a purchase shouldn't be the same person who approves the payment, who shouldn't be the same person who reconciles the bank statement afterward.
Why the rule exists as prevention, not detection
Auditors distinguish between preventive controls, which stop a single bad actor from having the opportunity at all, and detective controls, which catch fraud after the fact through review. Segregation of duties is prized specifically because it removes the opportunity before anything happens, rather than relying on catching it later. Forensic accountants studying real embezzlement cases find they disproportionately involve situations where one employee, often trusted for years, had unchecked control over both authorising and recording the same transactions.
What we're still unsure about
Segregation of duties is genuinely harder to implement in small organisations, where there simply aren't enough staff to split every function three ways — a small business owner is often, unavoidably, the person who orders supplies, approves payment, and reconciles the books. Auditors and small-business accountants disagree on the best practical compensating controls for organisations that can't fully separate duties, and there's no single settled formula for how much oversight is "enough" once true separation isn't achievable.
This sits inside Auditing Principles & Internal Controls, one of seven topics in Accounting, one of four domains in Business, one of seventeen subjects the app can quiz you on.