Control Environment is the first of five components in the Green Book's internal control framework and is the foundation of an effective internal control system and begins with the "tone at the top" - the words and actions of the agency's leadership. It provides the discipline and structure, which affect the overall quality of internal control. It influences how objectives are defined and how control activities are structured. The oversight body and management establish and maintain an environment throughout the entity that sets a positive attitude toward internal control.
The Green Book identifies five principles that must be implemented and effectively working together for the control environment to be effective. These principles are:
- The oversight body and management should demonstrate a commitment to integrity and ethical values.
- The oversight body should oversee the entity's internal control system.
- Management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity's objectives.
- Management should demonstrate a commitment to recruit, develop, and retain competent individuals.
- Management should evaluate performance and hold individuals accountable for their internal control responsibilities.
The Control Environment Self-Assessment Tool (see below) is useful in prompting discussions among agency senior management and helps determine what, where, and how improvements can be implemented in the agency's current control environment.