Assessing the Effectiveness of Internal Control: PEMPAL Guidance for Public Sector Internal Auditors

October 2020

This guidance has been developed to help internal auditors better understand the main features of effective internal control and how to assess and evaluate the functionality of internal control systems. It includes a series of criteria for assessing the maturity of internal controls. These may be useful for internal auditors working in organizations that are in the process of developing/refining public financial management (PFM) systems. The guidance:

• Outlines the main features of internal control as promoted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)1 (Part 2 and Annex A).

• Explains the five components of internal control and the 17 underlying principles of internal control that need to be met for internal control to be effective, tailored to the public sector context (Part 3 and Annexes B1-B5).

• Identifies criteria for assessing the extent to which each of the principles has been met (Annexes B1-B5).

• Promotes a model for a four-level assessment of the maturity of internal control (Part 4).

• Presents a detailed framework for assessing the maturity of internal controls at the four levels, drawing on PEMPAL assessment criteria (Annex C).

This guidance will be used by the IACOP and may be further updated to reflect views expressed and knowledge developed at future meetings of the Internal Control Working Group.