Segregation of duties for cash means no single person can both get their hands on money and make the records say nothing happened. Split cash work into four duties: custody, recording, approval and reconciliation. Give each to a different person, or pair the gaps with a review. Then any theft needs two people working together.
The four cash duties: custody, recording, approval and reconciliation
Cash work breaks into four duties. Custody is physical or electronic access to the money. Recording is entering transactions in the ledger. Approval is authorizing a payment or a write-off. Reconciliation is proving the bank and the books agree. Each duty is harmless alone. Trouble starts when one person holds two.
Custody
Custody covers anyone who can move or touch cash. That includes the person who opens the mail and handles checks, the cashier with a till, the custodian of a petty cash box, and anyone with a bank login that can send money out. Electronic custody is easy to overlook. A staff member who never sees a banknote but can create an ACH batch has more custody than the receptionist with the stamp box.
Recording
Recording is the ledger side: posting customer receipts, entering bills, booking journal entries and editing vendor or customer master records. A person with recording rights decides what the books say happened. Master-data rights belong here too. Whoever can change a vendor's remittance address or bank details is shaping where future payments land.
Approval
Approval is the authority to say yes. It covers signing checks, releasing a payment run, approving a credit memo, writing off a receivable or accepting a new vendor. Approval only works when the approver sees the support. A signature on a stack of checks with no invoices attached is custody with extra steps, not approval.
Reconciliation
Reconciliation compares an independent record, usually the bank statement, with the ledger and explains every difference. It is the detective duty: it finds what slipped past the other three. Because it can also hide what slipped past, the reconciler should not be the person whose work is being checked.
Which pairs of cash duties should never sit with one person?
The pairs to keep apart are the ones that let a person take cash and then cover the gap. Custody plus recording is the worst: the person who receives a check can also post a false credit. Custody plus reconciliation comes next, because the person who moved the money also explains the bank statement.
Here are the conflicting pairs, with the scheme each one allows. These are illustrations of common patterns, not a complete list.
| Duties held together | What the person can do |
|---|---|
| Custody and recording | Pocket a customer check, then post a credit memo or move the balance to bad debt |
| Custody and reconciliation | Send a payment to themselves, then carry it as an "outstanding" item or bury it in a plug |
| Approval and recording | Create a fake vendor, enter a bill and approve it |
| Approval and custody | Approve a payment and also release it from the bank portal |
| Recording and reconciliation | Book an entry that hides a difference, then sign off the reconciliation that would have caught it |
The custody and reconciliation pair deserves a closer look. A reconciliation is the control most people rely on to find theft. When the reconciler also has payment rights, the reconciliation stops being evidence. The month-end report still balances, but only because the person it should catch prepared it.
Some combinations carry little risk. A clerk who records receipts and also files paper is not a concern. An approver who reconciles a different account they never touch is fine. The test is always the same: could this person take money and keep anyone from noticing? If yes, the pair needs to be split or covered.
A cash duty matrix you can fill in for your own team
A cash duty matrix lists each cash task in a row and each person in a column, then marks which duty the task gives that person. Reading down a column shows whether anyone holds a conflicting pair. It takes an hour to build and turns a vague worry into a list of named gaps.
The matrix below is an example for a five-person team. The names and assignments are made up. Marks: C is custody, R is recording, A is approval, X is reconciliation or review.
| Cash task | Dana (owner) | Lee (controller) | Sam (AP clerk) | Pat (AR clerk) | Jo (office manager) |
|---|---|---|---|---|---|
| Open mail and list checks received | C | ||||
| Deposit checks at bank | C | ||||
| Post customer receipts | R | ||||
| Approve customer credits and write-offs | A | ||||
| Enter vendor bills | R | ||||
| Add or change vendor bank details | R | ||||
| Approve payment run | A | ||||
| Release ACH and wires in bank portal | A | ||||
| Initiate ACH batch in bank portal | C | ||||
| Hold petty cash box | C | ||||
| Reconcile operating account | X | ||||
| Review and sign off reconciliation | X | ||||
| Review vendor master change report | X |
Checking the example matrix
Read each column in turn. Jo holds custody of mail, deposits and petty cash, with no recording and no reconciliation, so Jo has no conflicting pair. Pat records receipts but never touches checks. Sam records bills, changes vendor bank details and initiates ACH: that is recording plus custody, a conflict. The matrix covers it in two places. Dana must release every batch Sam starts, and Lee reviews every vendor master change. Dana approves and releases payments, which is approval plus custody, but Lee's reconciliation and Dana's own review sit on top of it. In a business this size, the owner holding both is a common and accepted trade.
Filling in your own matrix
- List every cash task, including online banking actions and master-data changes. Ask the bank for a user report rather than relying on memory.
- Put every person who touches cash or the ledger in a column, including the owner and any outside bookkeeper.
- Mark each cell with the duty it gives.
- Read down each column and circle any conflicting pair from the table in the previous section.
- For each circle, either move a task or write the compensating control next to it, with who performs it and how often.
Keep the finished matrix with the year's control documentation and update it whenever someone joins, leaves or changes role.
How do you segregate cash duties when the finance team is tiny?
With one or two people, full segregation of cash duties is not possible, so the goal shifts to review. Someone outside the daily work, usually the owner or a board member, looks at the evidence a thief would need to hide: the bank statement, cleared check images, new vendors and the reconciliation itself.
Compensating controls that work in very small teams include:
- Bank statements delivered to the owner first. The owner opens or downloads the statement before the bookkeeper sees it and scans for payees they do not recognise.
- Owner sign-off on the reconciliation. The reviewer reads the reconciling items and asks about anything older than a month, rather than initialling the last page.
- Payment release by the owner. The bookkeeper prepares, the owner releases, even if it adds a day.
- An outside accountant's periodic look. A quarterly review by someone who does not work in the books every day.
The full treatment of a two-person office, including which tasks the owner must keep, is in segregation of duties in a small business with two people. For the review itself, the bank reconciliation review checklist for reviewers lists what to look at so the sign-off means something.
Card spending is a frequent blind spot in small teams. The same person often holds the card, codes the charges and reconciles the statement. Splitting at least the reconciliation, or using automated credit card reconciliation so a reviewer sees each charge matched against a receipt, closes much of that gap.
Bank portal permissions that quietly undo segregation of cash duties
Online banking permissions often contradict the duty split on paper. A policy may say the clerk initiates and the owner releases, while the bank portal lets the clerk do both. The bank enforces what the portal settings say, not what the policy manual says, so the settings are the real control.
Check these settings with your bank or in the portal's administration screens:
- Dual control on payments. Many business portals let an administrator require a second user to approve ACH batches and wires before release. Confirm it is switched on for every payment type, not just wires.
- Who is an administrator. An administrator can usually create users and change limits. If the clerk is an administrator, the clerk can create a second login and approve their own work.
- Payee and template edits. Editing a saved wire template or ACH payee can redirect money without creating a new payment. Find out who can edit templates and whether edits need approval.
- Limits per user. Per-transaction and daily limits cap the damage from a compromised login.
- Alerts. Email or text alerts to the owner for new payees, changed templates and large payments give a second pair of eyes for free.
Print or export the user permission report every quarter and compare it to the duty matrix. Any login that gives someone both custody and approval is a conflict, whatever the paper says. Former employees should show as removed, not just disabled on a list nobody checks.
Mistake: a cash duty split that collapses during holidays and sick days
The most common failure in segregation of cash duties is the cover arrangement. When the reconciler is on holiday, the payments clerk does the reconciliation. When the approver is sick, the clerk gets their login. For two weeks a year, the split does not exist, and anyone patient enough knows exactly when those weeks are.
Plan cover in advance and write it into the matrix:
- Name a backup for each duty, chosen so the backup does not create a new conflicting pair. The AP clerk is never the backup reconciler.
- Let reconciliations wait. A reconciliation done a week late by the right person is better than one done on time by the wrong person.
- Never share logins. Each backup gets their own credentials with the permissions the role needs, so the bank's audit trail still shows who did what.
- Review the cover period afterwards. When the regular person returns, they look at what happened in their absence, especially payments released and vendor changes made.
Cover periods also explain why a required vacation is a fraud control in its own right. Some schemes, such as lapping customer receipts, need daily attention to keep from unravelling. A person who never takes time off may be keeping one going.
What a reviewer looks for in the evidence
Whoever reviews the split should be able to see it in records, not just hear it described. That means the bank's approval history showing two users on each payment, reconciliations initialled by someone other than the payment initiator, and a vendor change log with a reviewer's mark. When reconciliations are prepared in software, the exception report should show the preparer and reviewer separately. PreciseBankFlow lists every difference, duplicate and gap from a bank statement with its evidence, which gives the reviewer something concrete to sign rather than a total that happens to agree.