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When you’re safeguarding millions of dollars, sensitive customer data, and your institution’s reputation, even a small misstep can have catastrophic consequences. Take the Evolve Bank and Trust breach in May of 2024. The infamous hacking group LockBit struck again and released millions of records. Not only was Evolve impacted, but vendors like Affirm, Wise, and Bilt Rewards were also harmed.
Breaches like this one highlight the need to ensure that no one person has the ability to compromise the entire system. This foundational security principle is referred to as the segregation of duties (SOD) and is an effective way to mitigate internal security risks. But what exactly is SOD, and why is it crucial for your bank’s safety? Let’s break it down.
What Is Segregation of Duties (SOD)?
Segregation of Duties (SOD) is an internal control mechanism that ensures no single individual has the authority to execute conflicting financial, operational, or technical tasks end-to-end. By dividing key responsibilities among different individuals or teams, SOD reduces the risk of both accidental errors and intentional misconduct.
Core Principles of SOD
The key idea behind SOD revolves around “checks and balances.” It ensures that critical tasks—like creating, approving, and auditing financial transactions—are divided among different employees. These actions require separate people to approve or execute, which minimizes inherent bias or fraudulent opportunities.
For example, information security officers should work independently from the IT operations team and not report to IT operations management—that way, responsibilities stay clear and separate. Their role is to step in during security incidents, acting quickly to protect the institution and its customers from losing vital information.
They also work to safeguard the privacy, accuracy, and availability of data while making sure critical services keep running smoothly with minimal interruptions.
The pillars of SOD can be summarized in three principles:
- Authorization: One employee approves or initiates a transaction.
- Execution: A separate employee carries out the actual transaction.
- Record-Keeping: Another person monitors and reviews the transaction for accuracy and compliance.
Application in Banking
For banking IT, where sensitive customer data and financial assets are managed, SOD principles apply across the entire organization. From managing privileged account access to deploying software updates or configuring firewalls, no single individual should hold end-to-end control over these processes.
Why Segregation of Duties is Crucial for Internal Security
SOD is not just a best practice; it’s a necessity in bank network security. Here’s why it needs to be a non-negotiable part of your internal controls:
Minimizing Fraud Risks
Fraudulent activity is often an inside job. According to the Association of Certified Fraud Examiners (ACFE), occupational fraud costs organizations an average of 5% of their annual revenues, with banking being one of the hardest-hit industries. SOD creates a natural barrier to fraud by ensuring that no employee has unchecked access to critical functions or assets.
For example, an employee who approves vendor payments shouldn’t be allowed to enter or edit vendor details. If the same person can do both, it creates an opportunity for fake vendor schemes or falsified transactions.
Preventing Errors
Even experienced IT professionals can make mistakes, and errors in network systems can lead to outages, data inconsistencies, or vulnerabilities. Segregation of duties adds an essential layer of oversight, helping to catch mistakes early in critical IT functions like configuration changes, patch management, or user provisioning.
This shared responsibility ensures that issues are flagged and addressed before they can escalate into larger problems.
Reducing Malicious Activity
Insider threats aren’t always about fraud. They can range from data theft to unauthorized changes in internal systems. With SOD, you can restrict privileged access to ensure that critical systems don’t end up in the wrong hands.
For example, a single administrator having unchecked access not only creates a significant risk of malicious activity but also weakens the accountability structure essential for monitoring access and changes to critical infrastructure.
Building Transparency and Accountability
SOD introduces traceability into IT operations. By sharing responsibilities and documenting every action, you create an environment where misconduct is deterred, and accountability is unavoidable.
This transparency is especially critical for regulatory compliance and during internal or external audits. Clearly assigned roles and documented workflows make oversight seamless and effective.
Key Areas in Banking IT Where Segregation of Duties is Vital
Not every task within bank network security requires strict segregation, but several high-risk areas demand tight compliance:
- User access provisioning should be separate from access authorization and monitoring.
- The information security officers should be independent of the IT operations staff and should not report to IT operations management.
- Information security officers should be responsible for responding to security events by ordering emergency actions to protect the institution and its customers from imminent loss of information; managing the negative effects on the confidentiality, integrity, availability, or value of information; and minimizing the disruption or degradation of critical services.
- Independent monitoring of the activities performed by users with increased privileges (e.g., system administrators and super users).
- Distribution of system administration activities so no administrator can hide their activity or control an entire system.
- Additional levels of approval as the criticality and sensitivity of decisions increase.
How Segregation of Duties Enhances Risk Mitigation
SOD isn’t just about processes—it’s about proactively mitigating risks that can take years to surface. Here’s how it bolsters your overall bank network security:
Limiting Access to Critical Systems
Access is one of the most sensitive areas within banking IT systems. SOD ensures that no single person has administrative privileges over data, transactions, and system logs simultaneously. This reduces exposure to both human error and malicious intent.
For instance, if an IT administrator installs software patches, another team is responsible for reviewing and auditing these changes to ensure compliance and prevent unauthorized installations.
Strengthening Internal Controls
SOD works hand-in-hand with internal controls by ensuring that roles are well-defined and separated. It enforces dual controls for high-risk transactions, like large fund transfers or previously flagged discrepancies, ensuring an added layer of scrutiny.
Enhancing Incident Detection and Response
When roles are clearly segregated, it’s easier to trace the origin of security incidents and respond rapidly. For example, in case of a fraudulent transaction, clearly delineated responsibilities help investigators identify gaps or override points faster.
Providing Backup and Recovery
Effective segregation requires that critical tasks are distributed between personnel. This also ensures redundancies are built into your team—creating better resilience in case of absenteeism or emergencies.
Get Specialized Help From RESULTS Technology
By incorporating SOD into your internal controls, your bank takes a major step toward minimizing risks and building trust—not just with regulators and shareholders, but most importantly, with your customers.
If your bank is looking to strengthen its internal controls, especially in the face of evolving security risks, it’s time to act. You can walk through each of your security layers with RESULTS Technology and create a customized, comprehensive security plan that works for your business.
Contact RESULTS Technology today to learn how we can help you secure your bank and its assets effectively. The safety of your bank is our top priority!
