Key Elements of the Three Lines Model:
Principle 1: Governance
At the top of the model is governance, representing the oversight body (e.g., the board of directors) that sets the organization’s objectives, provides direction, and ensures accountability. The governing body plays a crucial role in integrating all lines of defense into a unified strategy. It must establish a culture of integrity, set the organization’s risk appetite, and ensure there are adequate resources for effective governance, risk management, and assurance. This principle stresses the importance of an active, engaged board or governing body in guiding and monitoring the organization’s activities.
Principle 2: Management and the First and Second Lines Roles
Management is responsible for achieving the organization’s objectives, and it operates within two distinct lines. The first line consists of operational management and those directly responsible for the delivery of products and services. This line owns and manages risks by applying controls and making operational decisions. The second line includes functions that provide support, expertise, monitoring, and compliance oversight. These functions are typically focused on risk management, compliance, and quality assurance, helping to facilitate effective risk management and advising the first line. Second-line roles often include risk management officers, compliance officers, and other advisory functions.
Principle 3: Internal Audit and the Third Line Role
Internal audit forms the third line and provides independent and objective assurance to the governing body and senior management. This role evaluates the effectiveness of governance, risk management, and control processes, ensuring that the organization is operating within its risk appetite. Internal auditors are expected to provide insights that improve the efficiency and effectiveness of these processes. Importantly, the third line must remain independent of management to maintain objectivity, while also maintaining collaboration to ensure its activities align with organizational goals.
Principle 4: Interactions and Communication
The model emphasizes collaboration and communication among all three lines. Each line has distinct roles, but they must work together to ensure the organization’s governance framework operates effectively. Clear communication between the governing body, management, and internal audit is critical. This principle reinforces that while the roles are distinct, they are interdependent and must be closely aligned for the overall success of governance and risk management.
Principle 5: Accountability and Roles
The revised model underscores the importance of accountability for all roles involved in governance. The governing body, senior management, and internal audit must clearly define their responsibilities and ensure that their actions are coordinated and aligned with the organization’s risk management and control systems. This principle focuses on ensuring clarity in role definition, which in turn fosters a more resilient governance structure.
The IIA’s Three Lines Model represents a shift from a rigid, siloed view of risk management to a more integrated and collaborative approach. By focusing on flexibility, governance, and communication, the model helps organizations balance risk management, control, and assurance with strategic objectives, ensuring that all lines are aligned toward achieving overall governance excellence.
