What does proper segregation of duties help prevent?

Proper segregation of duties is a key internal control mechanism designed to prevent unauthorized transactions and fraud. By dividing responsibilities among different individuals, organizations can ensure that no single employee has the ability to execute all aspects of a financial transaction, from initiation to approval and recording. This separation limits the opportunities for collusion among employees and reduces the risk of fraudulent activities.

For example, in a well-structured system, the person who authorizes payments should not be the same person who processes those payments. This creates checks and balances, making it more difficult for an employee to carry out fraudulent transactions without detection.

In contrast, while the other options address important aspects of efficiency and accuracy, they do not directly relate to the primary objective of segregation of duties. Redundant tasks and errors in data entry can occur regardless of whether duties are segregated; these are typically managed through other types of process improvements or training. Similarly, while inaccurate financial reporting can relate to segregation of duties, the primary focus of this control is on preventing unauthorized actions and ensuring the integrity of transactions.