Final answer:
Segregation of duties is a business control mechanism aimed at reducing the risk of error or fraud by dividing responsibilities among different people within an organization.
Step-by-step explanation:
The term segregation of duties is a control mechanism in business and accounting practices aimed at reducing the risk of error or fraud. This control is implemented by ensuring that no single individual has control over all aspects of any significant business transaction or operation. In essence, the duties for authorizing transactions, recording transactions, and handling the related asset are divided among different people. By doing so, it becomes more difficult for fraud to occur without detection since it would require collusion between multiple employees. Segregation of duties serves as a key component of an effective internal control system within an organization, ensuring accuracy and integrity in financial reporting and operations.
An illustrative example of segregation of duties would be in a retail environment where one employee operates the cash register while another is responsible for handling cash and preparing the bank deposit. This separation reduces the risk of cash theft, as any attempt at stealing would need to involve both parties.