What is one potential consequence of not segregating incompatible duties?

Not segregating incompatible duties can significantly increase the risk of fraud or errors within an organization. This principle is rooted in the internal control framework, which emphasizes the importance of dividing responsibilities among different individuals to prevent any one person from having control over all aspects of any critical transaction.

When incompatible duties are combined, it creates opportunities for individuals to exploit their positions for personal gain. For example, if the same employee is responsible for both handling cash and recording transactions, they might manipulate records to cover up theft or errors without detection. This lack of oversight can lead to financial discrepancies, unintentional mistakes, or deliberate fraud.

In contrast, when duties are properly segregated, it becomes difficult for any single individual to perpetrate fraud without collusion. This division fosters accountability, as individuals know that their actions are being monitored by others. Therefore, implementing segregation of duties is a key control mechanism that organizations utilize to mitigate risks associated with financial misstatements and unauthorized transactions.