Principle 3: Establishes structure, authority and responsibility

To meet the principle 3: establishes structure, authority and responsibility requirement, you must define and document who owns each internal control, what decisions they can make, how reporting lines work, and how accountability is enforced. Operationalize it by publishing an org/control responsibility model, mapping controls to accountable owners, and retaining evidence that the structure works in day-to-day execution ¹.

Key takeaways:

• Document structure (org design, reporting lines, committees) that supports internal control outcomes ².
• Assign authority and responsibility down to control owners with clear decision rights and escalation paths ².
• Prove operation with an “evidence bundle” that shows ownership, approvals, and ongoing monitoring, not just policy statements ².

Principle 3 is where “tone at the top” turns into a working operating model. Auditors, regulators, and customers don’t only want policies; they want a repeatable way to show who is accountable for control performance, who has authority to approve exceptions, and how issues get escalated and resolved. COSO frames this as establishing the structure, authority, and responsibility needed to achieve objectives and support internal control ².

For a Compliance Officer, CCO, or GRC lead, the fastest path is to treat Principle 3 like a governance engineering task: define the org structures that matter for control oversight, assign named owners to each control, specify decision rights, and build a simple evidence trail that demonstrates those roles are active. If your teams cannot show who owns the requirement, how often it runs, or which evidence proves it is operating, you have a predictable audit finding waiting to happen ².

This page gives requirement-level implementation guidance you can put into production quickly, including a control-owner model, required artifacts, exam questions, and a practical execution plan aligned to COSO Principle 3 ³.

Requirement overview (plain-English)

What Principle 3 requires: Your organization must deliberately set up governance and reporting structures, define who has authority to make control-related decisions, and assign responsibility for executing and overseeing controls. Then you must be able to demonstrate, with records, that the structure is real and used.

What this looks like in practice:

• People know who approves risk decisions (not just who does the work).
• Control owners can describe their control, run it on schedule, and produce evidence.
• Escalations and exceptions are handled through defined paths, with documented outcomes. This expectation is aligned to COSO’s internal control framework, including the principle summary and framework guidance ⁴.

Who it applies to

Entity types: Enterprise organizations adopting COSO as their internal control framework, including public and private companies, regulated financial services, and any organization subject to internal/external audit expectations tied to COSO ².

Operational contexts where Principle 3 becomes “exam critical”:

• You are preparing for a financial statement audit, SOC reporting, or internal audit program mapped to COSO ¹.
• You have shared services or decentralized operations where responsibilities blur (finance vs IT vs operations).
• You rely on third parties for key processes (outsourcing, SaaS platforms, payroll processors), which creates “who owns the control” confusion unless explicitly assigned.

Regulatory text

Provided excerpt: “COSO internal control principle 3 implementation expectation.” ¹

Operator interpretation: You are expected to implement governance and accountability mechanisms that make internal control executable. Examiners typically interpret “structure, authority and responsibility” as: documented org structures and reporting lines, defined oversight bodies where relevant, named accountable owners for controls, and demonstrable decision rights for approvals, exceptions, and remediation ².

What you actually need to do (step-by-step)

Use this as an implementation runbook. The goal is to make ownership auditable and operation provable.

1) Define the “control governance” structure that matters

Create a one-page governance snapshot that includes:

• Board/committee oversight touchpoints (as applicable)
• Executive ownership (who is accountable for the control environment)
• Control execution layers (process owners, control owners, operators)
• Independent oversight layers (compliance testing, internal audit, second-line functions if present)

Keep it simple. Most audit friction comes from org charts that exist, but don’t map to control responsibilities.

Artifact: Governance snapshot + org chart excerpts that show reporting lines relevant to control oversight.

2) Build a RACI that goes down to each control (not just each policy)

Create a control responsibility matrix that, at minimum, includes:

• Control name / control objective
• Accountable executive (A)
• Control owner (R/A depending on your model)
• Operator (R)
• Reviewer/approver (C/A)
• Escalation point (C/A)
• Systems and data inputs

This step operationalizes the core COSO expectation for defined responsibility and authority ².

Practical tip: If you can’t name an accountable owner, the control is not owned. Park it as a gap and assign an interim owner.

3) Document decision rights and exception authority

For each control area, define:

• Who can approve exceptions (and which kinds)
• What requires senior sign-off
• When an issue becomes a reportable deficiency internally
• Escalation timelines and forums (committee, leadership meeting cadence)

You’re preventing “shadow approvals” in email and Slack from becoming the real governance system.

Artifact: Decision-rights table (by control domain) + exception process SOP.

4) Create a “requirement control card” for Principle 3-relevant controls

For each control that supports Principle 3 (and for other controls, if you standardize), create a control card with:

• Objective and risk addressed
• Owner (named role, plus current person)
• Trigger events and frequency (for example: org changes, quarterly reviews, new system launches)
• Execution steps (what happens, by whom)
• Review/approval steps (who signs off)
• Exception rules (what can be waived, who approves)
• Evidence to retain and where it lives

This is explicitly aligned to recommended operational best practice from the provided guidance ².

Where Daydream fits naturally: Daydream’s control cards and evidence bundle templates reduce the “policy-only” problem by turning governance requirements into runbooks with owners, triggers, and audit-ready evidence locations.

5) Define the minimum evidence bundle (so audits don’t become a scramble)

For each execution cycle, require a minimum set of proof, such as:

• Inputs (data extracts, reports, tickets, meeting agendas)
• Approvals (sign-offs, workflow approvals, minutes)
• Outputs (completed reconciliations, access reviews, control attestations)
• Exception records (waivers, compensating controls, approvals)
• Retention location (GRC tool, ticketing system, document repository)

This is the second recommended control in the provided pack ².

6) Run recurring control health checks and track remediation to closure

Set a lightweight operating rhythm:

• Periodic check that every control still has a named owner
• Evidence spot-checks for a sample of controls
• Issue log with owners and due dates
• Closure validation (don’t close items because someone said “fixed”)

This is the third recommended control and is how you show the structure actually works over time ².

Required evidence and artifacts to retain

Use this as your “audit-ready binder” checklist for Principle 3.

Evidence/Artifact	What it proves	Owner
Governance snapshot + relevant org chart excerpts	Defined structure and reporting lines	Compliance/GRC
Control responsibility matrix (RACI by control)	Assigned responsibility and accountability	GRC + process owners
Role descriptions for key control roles	Authority/responsibility is formalized	HR + control owners
Decision-rights / delegation-of-authority mapping	Who can approve, waive, or escalate	Legal/Compliance/Finance
Committee charters and minutes (as applicable)	Oversight exists and meets	Corporate Secretary/Compliance
Control cards	Control runbooks exist with owners/triggers	Control owners
Evidence bundles 5	Controls operated and were reviewed	Control owners
Issue log + remediation validation	Accountability and follow-through	Compliance/Internal audit

Common exam/audit questions and hangups

Expect these lines of questioning:

• “Show me who is accountable for this control and who reviews it.”
• “If the control fails, who must be notified and who can accept the risk?”
• “What happens when an owner changes roles?”
• “Where is the evidence stored, and how do you know it is complete?”
• “How do you know responsibilities are understood by the business?”

Hangups auditors see repeatedly:

• A RACI exists for processes but not for controls.
• Ownership is a team name, not a person/role with accountability.
• Exception handling is informal, so decision authority cannot be proven.

Frequent implementation mistakes (and how to avoid them)

1. Mistake: Publishing an org chart and calling it done.
   Fix: Tie structure directly to control oversight and control execution. Map governance bodies to responsibilities and evidence ².

2. Mistake: Assigning “responsible” without “authority.”
   Fix: Document decision rights: approvals, waivers, escalation triggers, and who can accept residual risk.

3. Mistake: Treating Principle 3 as HR paperwork.
   Fix: Build control cards and evidence bundles. If owners can’t produce evidence on request, the structure is not functioning ².

4. Mistake: No mechanism to keep ownership current through re-orgs.
   Fix: Add ownership review as a trigger event for org changes and incorporate it into change management.

Enforcement context and risk implications

No public enforcement cases were provided in the source catalog for this requirement. COSO is a framework, and enforcement typically appears through the expectations of regulators, auditors, and reporting obligations that reference internal control effectiveness rather than direct “COSO violations” ¹.

Risk implication you should plan around: Weakly defined authority and responsibility often surfaces as control failures that are hard to remediate quickly because nobody can approve fixes, fund them, or enforce timelines. The operational risk is delay, inconsistent control performance across teams, and gaps in audit evidence.

Practical 30/60/90-day execution plan

You asked for fast operationalization. Use phased delivery with concrete outputs.

First 30 days (stabilize ownership and decision rights)

• Inventory key controls and identify missing owners.
• Publish a draft control responsibility matrix for priority areas (financial reporting, ITGCs, privacy/security controls if in scope).
• Define a minimum evidence bundle standard and retention locations.
• Create control cards for the highest-risk controls and any control with repeated evidence gaps ².

Days 31–60 (formalize governance and make it repeatable)

• Finalize governance snapshot and connect it to committee charters/minutes where applicable.
• Finalize delegation/decision-rights tables and roll them into your exception process.
• Train control owners and reviewers on evidence expectations and escalation paths.
• Stand up an issue log with clear assignment and closure validation.

Days 61–90 (prove operation with health checks)

• Run the first control health check: confirm ownership, test evidence completeness, validate approvals.
• Remediate gaps and re-test high-priority items.
• Prepare an audit-ready “Principle 3 packet” that includes governance structure, RACI, decision rights, sample control cards, and sample evidence bundles ².
• If you use Daydream, standardize the control card + evidence bundle templates across teams so ownership and proof look consistent during audits.

Frequently Asked Questions

Do I need a separate committee structure to satisfy Principle 3?

Not necessarily. You need a structure that fits your organization and can show oversight and accountability in practice ². If you already have governance forums, document how they relate to control oversight and decisions.

Can a shared mailbox or team be the control owner?

Auditors usually want a named role (and often a named person) who is accountable for performance and evidence. You can list an operational group for execution, but assign accountability to a role with authority to remediate and approve exceptions.

What’s the minimum I should document for “authority”?

Document who can approve control performance, who can approve exceptions, and who can accept risk when a control fails. Write it in a simple decision-rights table tied to the control responsibility matrix.

How do I handle ownership during reorganizations and turnover?

Treat org changes as trigger events that require an ownership review and evidence-location check. Add this step to change management so ownership doesn’t drift.

What evidence is most persuasive in an audit for Principle 3?

A control responsibility matrix plus a small set of control cards with complete evidence bundles usually resolves most questions quickly ². Pair the documentation with real examples of approvals and escalations.

We have policies but owners still can’t produce evidence quickly. What should we change first?

Start with evidence bundling and retention locations, then add control cards with explicit steps and outputs ². Policies alone rarely specify the operational proof auditors request.

Footnotes

1. COSO Internal Control guidance page

2. COSO IC framework overview

3. COSO Internal Control guidance page; Weaver summary of COSO 17 principles

4. COSO IC framework overview; COSO Internal Control guidance page; Weaver summary of COSO 17 principles

5. control cycle