Research on Internal Control System in Relation to Risk Management

Internal control in commercial banks. However, the topic has not studied the role of state management in the internal control system, the solutions have not been clearly linked to risk management although the author has identified the types of risks in the operations of commercial banks in the theoretical basis section.

Doctoral thesis of author Nguyen Bich Lien (2018) with the content "Improving internal control activities in Vietnamese commercial banks" [10]. The thesis has systematized the theory of internal control, internal control framework for commercial banks. In the part of assessing the current status of internal control activities at commercial banks, the author also relies on the internal control assessment framework according to COSO to assess the constituent elements of internal control. The thesis also proposes solutions to improve internal control to enhance the effectiveness of internal control in commercial banks. However, the thesis has not yet assessed internal control from the role of the State from the perspective of economic management.

1.2.2. Research on internal control system in relation to risk management

Research by author Nguyen Kim Quoc Trung on "The relationship between internal control and credit risk at commercial banks"[...1000....] The article studies the relationship between internal control and credit risk at state-owned joint stock commercial banks in Vietnam from 2009-2016, thereby presenting the theoretical basis of internal control to highlight the need for implementing internal control at banks. The study uses quantitative methods (general regression, fixed effects model and random effects model), showing the relationship between internal control and credit risk at joint stock commercial banks. The research results show that the risk assessment factor and control activities have an inverse relationship with credit risk, while the control environment factor and the information and communication factor have a positive relationship with credit risk.

[…1000….] Nguyen Kim Quoc Trung, The relationship between internal control and credit risk at commercial banks, Finance magazine, 2017. The doctoral thesis of author Truong Nguyen Tuong Vy (2018) studies internal control over credit activities at Vietnamese joint stock commercial banks to perfect the risk management system according to international standards.

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[1001]. Based on the Basel 1998 report and inheriting the newly updated points on internal control of the COSO 2013 report, the author establishes internal control of credit activities through five components of internal control of credit activities: control environment, credit risk assessment, credit control activities, information and communication, credit monitoring activities according to the principles of establishing internal control proposed by the Basel report and inheriting the newly updated points on internal control of the COSO 2013 report to provide reasonable assurance of effective credit activities. The research objective is to assess the current status of internal control of credit activities at Vietnamese joint stock commercial banks, thereby recommending policies to improve internal control of credit activities to provide reasonable assurance of the goal of achieving the highest efficiency in Vietnamese joint stock commercial banks. Leaders of Vietnamese joint stock commercial banks, depending on their subjective wishes and consideration of the benefits and costs of establishing internal control of credit activities at the bank, will flexibly apply them to perfect the establishment of internal control of credit activities in the most optimal way, helping to reasonably ensure the most effective credit activity goals according to the development strategy of each bank.

[..1001] Truong Nguyen Tuong Vy (2018), Internal control of credit activities at Vietnamese joint stock commercial banks, PhD thesis in economics, Banking University of Ho Chi Minh City

The doctoral thesis of author Dinh Hoai Nam (2016) studied the internal control system at enterprises in the Housing and Urban Development Corporation [11]. The thesis systematized the basic theoretical issues of the internal control system in enterprises according to the parent company - subsidiary model. The author identified and analyzed the risks that affect the objectives of the internal control system as well as created a questionnaire and conducted a survey at 37 enterprises that are member units of the Corporation to obtain the current status of the internal control system at the Housing and Urban Development Corporation based on 3 factors: the control environment, the accounting system and the control procedures. The thesis proposed solutions to improve the internal control system. The new point of this thesis is that it studied the internal control system with the most important function of warning and preventing possible risks.

happen to businesses. However, in the theoretical part of the thesis, the concepts of control, internal control, and internal control system are not distinguished.

The doctoral thesis of author Nguyen Thi Thu Ha (2016) studies the internal control system in non-life insurance enterprises in Vietnam [4]. The theoretical basis of the internal control system that the author studies is based on the integrated framework of internal control of COSO - which is standardized, applicable worldwide and in all fields and industries. The thesis clarifies insurance business activities including primary insurance business, reinsurance business, investment activities and characteristics of the activities. The thesis analyzes the necessity and role of the internal control system in non-life insurance business, a special business field with many potential risks. The thesis chooses to study the internal control system in 15/30 non-life insurance enterprises. From the practical study of the internal control system of non-life insurance enterprises, the thesis proposes solutions focusing on resolving the shortcomings and limitations identified in the practical part to perfect the internal control system in non-life insurance enterprises towards risk management to limit risks affecting the enterprise's goals.

The doctoral thesis of author Nguyen Thanh Thuy (2017) studies the improvement of the internal control system of Vietnam Electricity Group [23]. The thesis studies the internal control system at the parent company of the Group and member companies of Vietnam Electricity Group including 23 level 1 subsidiaries and affiliated companies of the parent company. The thesis has generalized the general theory of the internal control system at an enterprise, analyzed different views on the internal control system, on that basis, developed in the direction of concretizing the general theory of the internal control system at economic groups. The thesis has analyzed the operational characteristics of economic groups that influence the design and operation of the internal control system at the group in order to clarify the design and operation of the internal control system according to the group model existing in the form of parent company - subsidiary. The solutions proposed by the thesis to improve the internal control system at Vietnam Electricity Group focus on controlling key risks affecting the achievement of the Group's goals.

1.3. Conclusion on research gaps

Through the author's overview research, there have been many studies on internal control systems in different industries, fields, and units, but there are still gaps for the topic to continue to research and exploit, specifically:

Regarding content : According to the author's general research, from the theoretical research perspective, most of the topics approach the internal control system from the perspective of corporate governance within the scope of a Sector, a Ministry or a Corporation... but have not mentioned the role of the State with the function of macro management, implementing management/supervision of activities for enterprises in general and banks in particular. On the other hand, considering the relationship between the operation of the internal control system and risk management in enterprises is very important in perfecting the internal control system on the basis of risk. Through the general research, many topics have not mentioned the important risks that may occur in the operation of enterprises in general and banks in particular along with the characteristics of the industry; has not yet pointed out the factors affecting the internal control system... Therefore, the solutions to perfect the internal control system of previous research projects have not been aimed at perfecting according to the goal of warning and preventing important risks of enterprises in general and commercial banks in particular in the conditions of macro management of the State.

Regarding the scope of the study: According to the author's overview, there are very few general studies on the theory and practice of the internal control system of Vietnamese commercial banks in the industry, especially approaching the internal control system with the important function of warning and preventing risks that may occur in the business activities of the banking industry.

From the above reasons, the author believes that the gap for the author to research the topic "Internal control in Vietnamese commercial banks" is completely appropriate and necessary. The thesis focuses on studying the basic issues of the internal control system in commercial banks; assessing the current status of the internal control system in Vietnamese commercial banks from the perspective of state management and components of the internal control system; proposing solutions to improve the internal control system in Vietnamese commercial banks.

Chapter 2

BASIC ISSUES OF INTERNAL CONTROL

AND INTERNAL CONTROL SYSTEM OF COMMERCIAL BANKS

2.1. Internal control

2.1.1. Control in management

2.1.1.1. Concept and role of control in management

Control is a function that managers must perform even though the work results of all departments are achieved according to the set plan. To ensure that everything goes in the right direction, managers must monitor and evaluate work results. Actual results must be compared with previously established goals so that managers can take necessary actions to ensure that the organization is on the right track. The process of monitoring, comparing and adjusting is the content of the control function. Control is necessary in all areas of human activity, in organizations as well as in the whole society and is closely related to management. Without control, managers will not have the information to make appropriate decisions to adapt to the environment and it will be difficult to achieve the set goals.

There are many different approaches to management that have led to different views on management. Mary Parker Follet proposed the concept: "Management is the art of getting things done by other people" [82]. James H.Donnelly and his colleagues proposed the concept of management that emphasized the behavioral aspect of management: "Management is a process carried out by one or more people, to coordinate the activities of others to achieve results that one person acting alone could not achieve" [57, p.52]. The view that emphasizes the functions of management to achieve organizational goals, James Stoner and Stephen Robbins stated: "Management is a process that includes planning, organizing, managing people, and controlling activities in a unit in a systematic way to complete the goals of that unit" [56, p.45].

According to Henry Fayol, the father of modern management theory, management is a process that includes a set of five functions: planning, organizing, commanding, coordinating and controlling. He also said: "Control is the checking to confirm whether everything is done according to the plan or the instructions and principles that have been established, thereby pointing out weaknesses and errors that need to be adjusted, and at the same time preventing them from being allowed to recur" [51, p.49]. Gwick and Urwich listed seven functions of management: planning, organizing, staffing, commanding, coordinating, controlling, and budgeting. James Stoner divided management activities into four separate functions: planning, organizing, leading, and managing.

From the viewpoint of emphasizing the function of management, author Nguyen Quang Quynh believes that: Management is a process of orienting and organizing the implementation of predetermined directions based on resources to determine the highest efficiency. This process includes many stages, first of all, it is necessary to forecast and check information about resources and goals to be achieved, then build action plans and programs, and finally organize the implementation of the outlined plans and programs. He emphasized: “Control is not a phase or a stage of the management process but an inseparable function of management. Throughout the management process, control always exists before, during and after each orienting or organizing activity to implement or adjust each activity. In the most comprehensive way, control is understood as a synthesis of policies to grasp and operate the object or object of management” [20]. Author Nguyen Thi Phuong Hoa believes that: "Control is the process of measuring, evaluating and influencing the control object to ensure that the organization's goals and plans are implemented effectively" [7, p.14]. In general, different views on the function of management usually focus on the issue of managing people in an organization. However, these views are consistent in that: for the management process to be effective, it is indispensable to have the stages of planning, organizing implementation and controlling to achieve the goals. In which control

has a particularly important role, it is closely related to management, plays an important role in the decision making of managers. Control activities are the basis for managers to have sufficient information to make appropriate decisions to achieve the goals set by the organization. To achieve the common goals of the organization, it is necessary to perform the functions of management. The functions of management are the largest tasks, covering management activities.

From different perspectives on control and identifying the role of control in management, according to the author, control can be comprehensively understood as follows: Control is an important function of management, performed regularly and continuously in all aspects of operations and at all levels of management in the enterprise. The ultimate goal of control is to make the enterprise achieve the highest set goals with the lowest cost and risk level. However, for management activities to be carried out effectively, choosing the appropriate type of control to prevent risks is an important issue for the enterprise.

2.1.1.2. Control classification

The above assessment of the nature and role of control shows that control is present in all activities and fields, and is an object of interest to both administrators, workers in the unit, and information users. Considering different aspects, there will be many types of control depending on the field of operation, type of operation, management hierarchy, economic mechanism, social conditions, etc. The system of viewpoints and theories on control, the division of control types in enterprises is carried out on the basis of criteria such as the level of influence of the control subject on the control objects, scope, content, objects, purposes, and relationships between the control subject and object:

(i) Classified according to the relationship between the controlling subject and the controlled object, control includes control from subjects outside the unit and control from subjects inside the unit.

Control from entities outside the unit (external control): is a type of control performed by entities outside the unit such as control by superior units, control by state management agencies, etc. Internal control (control from entities inside the unit): is a type of control performed by entities inside the unit, conducting mutual control in many directions for the purpose of internal management.

(ii) Classified according to the level of influence of the controlling subject, control includes direct control and indirect control. Direct control: Direct control includes operational control, processing control, and asset protection control. Indirect control: is overall control with many systems and many different jobs.

(iii) Classified by the time of control, control includes pre-forecast control, control during implementation (concurrent control), and post-implementation control (feedback control). Pre-forecast control (pre-forecast control): is the process of controlling before implementing an activity with the aim of preventing possible errors to help plans achieve success. Control during implementation (concurrent control): this is a type of control closely linked to the actual implementation of current work, including tasks such as monitoring and adjusting activities regularly and continuously to ensure compliance with established regulations and standards. Post-implementation control (feedback control): Is the collection and evaluation of information about a completed activity compared to the set goals, and at the same time, providing measures to improve future activities, helping to avoid repeating past mistakes.

(iv) According to the content of control, control includes organizational control and accounting control. Organizational control: is a type of control established to ensure the organization's compliance with the provisions of law and regulations of the unit, the effectiveness and efficiency of the organization in the process of performing activities to ensure the operation is on target, using economic resources effectively. Accounting control: is a type of control focusing on checking the information

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