Glossary · Operations
Segregation of Duties (SoD)
Segregation of duties splits incompatible tasks — initiating, approving, recording and reconciling a transaction — between different people so no one can both commit and conceal an error or fraud.
In a fund context, classic segregation separates the front office (investment decisions and trading) from the middle and back office (trade confirmation, settlement, valuation and accounting), and separates people who can instruct payments from those who reconcile the bank accounts. Valuation should be independent of portfolio management, and investor-register changes independent of payment release.
Where teams are small, perfect segregation may not be possible; compensating controls such as independent review, system-enforced approvals, exception reporting and use of an independent administrator or shadow accounting provider are then used. Access rights in systems should be designed around roles and reviewed periodically.
Auditors, regulators and investors assess segregation of duties during due diligence. Common findings include traders with access to change prices, single users able to set up and pay new beneficiaries, and generic administrator accounts. Role-based access reviews at least annually help keep segregation effective as staff change.
Related terms
Where this comes up in our work
Controls & Governance
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