Separating duties

The four jobs no one person should hold alone

Every association transaction touches four functions: deciding to spend the money, holding the checkbook or card, recording the transaction, and checking that the record matches the bank. When one volunteer treasurer does all four, there is no second set of eyes anywhere in the process, and no one would notice if a check was written that should not have been.

"Segregation of Duties is a system designed to prevent theft and fraud."

Source: Segregation of Duties, Personal MBA

This is not a comment on the treasurer's honesty. The control exists to remove the opportunity for a mistake or a theft to go unseen, regardless of who is sitting in the role.

What it looks like with real checks and a real statement

In practice, this means three separate hands touch a payment: someone prepares the check or payment request, a different person signs or approves it, and a third person, or at least someone who did not write the check, reconciles the bank statement against it each month.

"The person who signs checks should not be the same person who reconciles bank statements and receipts."

Source: HOA Fraud: A guide to detection and prevention, FirstService Residential

A CPA firm that advises association boards calls this one of the strongest tools available to a volunteer-run organization, alongside monthly reconciliation and a routine review of statements and budget-to-actual reports, not a one-time audit that happens once a year.

If your board only has one active volunteer

Small boards often cannot staff four separate functions with four separate people. When that is your reality, aim for the closest workable version instead of giving up on the control entirely. Route the bank statement to a board member other than the treasurer first, so the person who writes checks is never the only one who sees the statement before anyone else does. Have someone other than the check preparer perform the monthly reconciliation, even if that person is a volunteer with a lighter role otherwise.

The same principle applies beyond checks. Under a petty cash system, the person who physically holds the cash should not be the one who records or approves its replenishment.

"The custodian, who physically handles the cash, must not be the same individual who performs the final journal entry or approves the replenishment check."

Source: Petty Cash Internal Controls: Procedures and Best Practices, LegalClarity

Exactly how many signers your account needs, and who your bylaws or your bank require, varies by association. Segregation of duties tells you which jobs to keep apart; your governing documents and your bank's signature card tell you who is allowed to hold each one.