Separation of Duties

Definition
The term separation of duties means that the processes involved in procurement and supply are divided between two or more people so that no one person is responsible for the entire procurement process. It essentially involves three key authorities:

Background
The separation of duties is one of a range of strategies available to the procurement professionals for ensuring probity in procurement and supply. It achieves this objective by ensuring that no single individual has complete authority over all elements of one procurement transaction; the power is divided between two or more personnel. The importance of the concept of the separation of duties is illustrated by relevant regulations in the public sector aimed at ensuring and maintaining the required level of probity, integrity and within the procurement function.

Rationale
In their professional roles, all procurement practitioners are responsible for their organisation's expenditure through procurement activities and for implementing procedures to safeguard the integrity of the function.  It is essential that these procedures and controls include a policy for separation and allocation of duties.

Where employees choose to work outside the rules and procures, they should be reported to the appropriate authority for disciplinary proceedings. While it is not the role of procurement staff to act as internal police (which could damage their internal working relationships) they should be constantly on the alert for possible fraudulent activity within their own and other departments.

In the very unusual circumstances that a procurement staff member is instructed by their line manager to do something outside the procedures or, anything that could be perceived as unethical, they should use influencing skills or discuss the issue with either a senior colleague. This process should be formally documented.

Having established that separation of duties is effective and desirable in a given set of circumstances, it is important to identify all the potential risk points in a procurement process and then decide at which point risk controls should be emplaced. Assessment should include financial and non-financial risks, including reputation and impact on brand. Appropriate cost benefit analyses should be undertaken to ensure that any such measures are fully cost-effective.

Key Control Points
There are many control points or parameters in the separation and allocation of duties, but these can be summarised in broad terms as follows:

Key Controls
As a minimum requirement in a separation of duties policy, it is good practice for a minimum of three different staff to be responsible for the following sequence of three key activities in the list above:

• Determining the need (the requisition or equivalent, specification, budget, etc.)
• Undertaking the procurement process (sourcing and commitment)
• Effecting the financial aspects (authorising payment)

Another key control is to publish a table of delegations of authority which sets out who has authority to approve which of the identified processes. To make any changes to the role holder for a specific activity will require written authority from the head of procurement or internal auditor. However, the principle of no single individual having responsibility for more than one of the roles will still apply.

It is very important to ensure that those employees chosen to take on such responsibilities actually have the experience and competence to carry out their duties effectively.

Additional Tools
There are a number of additional tools which can be employed to support the separation of duties policy:

1. An Operations Manual that sets out all details of the procurement procedures, processes and policies. This should include levels of authority and roles and responsibilities for individual posts. The specific requirements in this manual should be mandatory and require compliance from all employees within the organisation.
2. A Code of Ethics – setting out the standards of behaviour expected of all procurement staff.
3. A Disciplinary Policy, operated by the HR department, which sets outs the processes for reporting failures in maintaining probity and describes the procedures for applying disciplinary measures, when appropriate.
4. A Risk Analysis to support the separation of duties policy as it identifies risk issues within the procurement function and the wider organisation.
5. Rotation of Duties is good practice in terms of improving job knowledge and enhancing staff flexibility but is also effective in reducing the risk of individual procurement staff developing unethical relations with suppliers.

All of the above encourages adherence to the separation of duties policy.
 

Benefits
The major benefit of having a separation of duties policy is that it assigns authority and responsibility to individual job holders for specific tasks but it also highlights to potential transgressors the difficulties and dangers of attempting to bypass organisational procedures.

There are other benefits in separating duties in procurement and supply, such as the cross-fertilisation of ideas and sharing of commercial expertise between the person who defines the need and the person responsible for the procurement activity.

An organisation's reputation is at stake when problems occur as a result of inappropriate separation of duties. By designing and implementing a robust governance structure that includes separation of duties the potential for errors and fraudulent activity will be greatly reduced.