What does 'segregation of duties' mean in internal controls?

Segregation of duties in internal controls is a critical concept aimed at reducing the risk of errors and preventing fraudulent activities. This principle involves dividing responsibilities among different individuals or teams within an organization so that no single person has control over all aspects of any critical transaction or process. For example, in financial operations, one person may be responsible for authorizing a transaction, another for processing it, and yet another for recording it. This division helps to ensure that actions are checked and verified by others, thereby reducing the opportunities for mismanagement or wrongdoing.

By implementing segregation of duties, organizations can create a system of checks and balances that enhances accountability and integrity. If all tasks were handled by a single individual, it would be easier for mistakes to go unnoticed or for fraudulent activities to occur without detection. Therefore, option B accurately captures the essence of segregation of duties, demonstrating its role in internal controls as a method for managing risks effectively.