Pub. 4 2015 Issue 6

Every Bank Needs Segregation of Duties Without segregation of duties, the consequences can be disastrous for both banks and customers. For example, at a certain bank, a trust officer controlled every aspect of his elderly clients’ banking needs. But one day, when he was on vacation, a customer came in to sell a U.S. Treasury note so he could lend $50,000 to his son. The bank personnel told the customer he did not have anything in safekeeping. Flabbergasted, the customer produced his safekeeping receipts of $300,000. As the bank investigated the matter, it discovered that the trust officer had been issuing safekeeping receipts but never recorded their existence in the bank. The trust officer also stole customers’ funds instead of purchasing investments. Going on for eight years, the embezzlement total was over $1.5 million. Segregation of duties is simple but vital in the banking world. In short, segregation of duties means setting up a process so a single transaction is never fully controlled by one employee — there are always two or more employees involved. While this is simple in concept, the actual maintenance and execution can be extremely difficult. In a well-run bank, all employees and managers think regularly about separation of responsibilities. At a minimum, the responsibilities of authorizing transactions, having custody of cash or other assets, and the reconciliation functions should all be separate — or at least rotated. Banks hold the public’s money and are, therefore, in an important position of trust. To earn and deserve that trust, banks have to ensure they use and update all procedures to keep money secure with the changing times. Let’s say the cashier’s check account needs to be balanced. Rather than having one person assigned to that duty, banks should have two or three people responsible for it. Each employee would balance the account for one month and then rotate to a different duty. This would ensure that one person didn’t have complete control of the cashier’s check account balancing. A teller introduces a trickier situation because a single person does a customer’s entire transaction electronically. There’s no bookkeeping function to separate that job, but there are still controls that can be put into place to achieve segregation. Banks must have someone to consider which employees are in control of which tasks and analyze when processes go out-of-date. Otherwise, the bank will not only destroy its credibility, but also negatively affect the public’s money. Luckily, these problems are easily preventable with the implementation of segregation of duties.With a reliable system, banks can retain the public’s trust and have complete confidence that each task is being carried out with integrity. Call KBS (785) 228- 0000 to discuss this article and other loss prevention topics or products to help protect your bottom line. twitter.com/kbsforbanks linkedin.com/company/kbsforbanks Subscribe at http://tinyurl.com/kbssubscribe Connect with us on social media: Gain access to enhanced KBS content: THIS IS ARTICLE 3 OF 7 STAY TUNED FOR MORE