What does the term 'separate duties' refer to in fraud prevention?

The concept of 'separate duties' is crucial in fraud prevention as it involves assigning different responsibilities to various employees to reduce the risk of fraud. This practice, also known as segregation of duties, ensures that no single individual has control over all aspects of a financial transaction or process. By separating responsibilities, such as authorizing transactions, processing payments, and handling receipts, an organization can create a system of checks and balances that makes it more difficult for fraudulent activities to occur undetected.

For instance, if one employee were responsible for both approving and processing payments, they could easily manipulate the system for their personal gain. With separate duties, it becomes much harder for an individual to commit fraud without collusion, as they would need the cooperation of others to bypass the controls in place. This approach not only protects the organization from fraud but also helps in maintaining accountability among staff, as each person's responsibilities are clearly defined and monitored.