Question

Corporate governance often relies on the three lines of defense model. Texas Oil Company drills for oil in the Gulf of Mexico and is extremely concerned with the risks associated with a well blowout where crude oil is emitted into the gulf causing a substantial environmental disaster. Texas is a large company with an Environmental Services department within corporate headquarters in Houston. It also has a 50 member internal auditing department. Day to day operational decision for drilling in the Gulf take place at the drilling field office in New Orleans Louisiana. Based on the structure of Texas, describe how the three lines of defense model would be applicable for Texas.

Answer 1

There are 3 lines of defense models which are required for corporate governance:

1. Operational Management

2. Risk Management

3. Internal Audit

Now let me describe you each of the above models:

1. Operational Management: It helps in ensuring internal control risks which is related to day to day operations of the company. It is more related to procedures and policies followed by the company.

2. Risk Management: It is more related to mitigating the risks exists within the company and ensuring correctness, completeness and accuracy of the procedures and policies with the values of the company.

3. Internal Audit: It is required for independent option by the third parties in order ensure that there is accurate operational management as well as risk management.