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Scoring and Quality Ranking of Bank Audits Conducted by State Audit Office in 2017


3

Vietnam Joint Stock Commercial Bank for Industry and Trade

(Vietinbank)

2015, 2017, 2019

4

Joint Stock Commercial Bank for Foreign Trade of Vietnam

(Vietcombank)

2015, 2017

5

Vietnam Development Bank (VDB)

2015

6

Vietnam Bank for Social Policies (VBSP)

2015, 2016, 2017, 2018

7

Co-opBank Vietnam

2019

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Scoring and Quality Ranking of Bank Audits Conducted by State Audit Office in 2017

Source: Audit report of State Audit Office 2015-2019

The results of the audits of banks conducted by the State Audit Office in the period 2015-2019 are shown through the issued Audit Reports, in which the State Audit Office has pointed out 3 main contents:

(1) Re-auditing financial statements: pointing out differences in items on the Balance Sheet and Business Performance Report, the performance of obligations to the State Budget, credit activities, and clearly indicating the reasons for the differences. The audit report also determines the accuracy and honesty of the Financial Statements of the Banks.

(2) Auditing compliance with laws, policies, financial, accounting and management regimes, and the use of state capital, money and assets.

+ Financial and accounting management: in which financial management includes managing capital in cash; managing fixed assets and other assets; managing receivables and payables; managing revenues and incomes; managing expenses; building salary unit prices, managing distribution and settlement of salary funds; auditing off-balance sheet indicators; fulfilling obligations to the State budget. Accounting work includes organizing the accounting apparatus, organizing accounting work such as accounting vouchers, accounting entries, accounting books, financial reports.

+ Management and use of capital, money and state assets: management of operating capital; lending activities; debt group classification, provisioning; debt restructuring, debt settlement, debt sale and interest exemption and reduction; capital contribution investment activities, share purchase, securities investment; foreign currency trading activities; bank guarantee activities.

+ Implementation of resolutions and policies of the National Assembly and the Government: assessment of the implementation of monetary policy; appropriate and sustainable credit growth solutions



ensure credit quality, accelerate bad debt handling; evaluate the implementation of the Financial Supervision Regulations, evaluate operational efficiency and financial information disclosure; evaluate the implementation of the Law on Anti-Corruption and the Law on Practicing Thrift and Combating Wastefulness.

(3) Auditing the economy, effectiveness and efficiency in the management and use of capital, money and state assets.

+ Comprehensive audit of the economy, efficiency and effectiveness in banking operations

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+ Assess the level of safety in operations

The end of the Audit Report is the State Audit's recommendation for

The audited banks also made recommendations to the State Bank of Vietnam. It can be seen that the State Audit Office not only conducts financial statement audits but also conducts operational audits and compliance audits of banks.

According to Decision No. 1793/QD-KTNN issued on November 4, 2016, the criteria, assessment scale and quality classification standards of the State Audit team are based on the following criteria (Audit quality is assessed on a 100-point scale - See Appendix No. 02):

a) Audit plan: Maximum 10 points.

Requirements for Audit Plan: Prepared and approved before conducting the audit; content and format comply with auditing standards and relevant regulations of the State Audit Office.

b) Detailed audit plan: Maximum 10 points.

Requirements for detailed audit plan: Prepared and approved according to regulations; must be complete and specific to guide the work of the audit team and auditors; content and format comply with auditing standards and relevant regulations of the State Audit Office.

c) Audit minutes and detailed audit results notice at the audited unit: Maximum 10 points.

Requirements for Audit Minutes and notification of audit results at the audit unit in detail: Audit Minutes fully summarize the audit results of the member.



Audit team members have sufficient opinions to evaluate the audit contents; have sufficient audit conclusions consistent with the audit results; have audit recommendations (if any) consistent with the audit results and conclusions, correct for the subject and feasible; the content, format and presentation comply with auditing standards and current regulations of the State Audit Office. The audit results announcement fully summarizes important audit results, has sufficient audit evidence; audit recommendations are consistent with the audit results and audit report of the audit team.

d) Audit report and announcement of audit results: Maximum 20 points.

Requirements for Audit Reports and Audit Results Notification: Fully, accurately, honestly and objectively reflect audit results, conclusions and recommendations; confirm the correctness and honesty of audited information and reports; evaluate compliance with laws, economy, effectiveness and efficiency in management and use of economic resources at the audited unit; content, format and presentation comply with auditing standards and relevant regulations of the State Audit.

d) Diary, working documents and audit evidence: Maximum 25 points.

Requirements for Diaries, working documents and audit evidence: Recording diaries, papers and working documents in compliance with auditing standards and relevant regulations of the State Audit Office; establishing and storing fully and scientifically according to the audit records list; content and format in accordance with regulations on audit records forms; ensuring consistency between documents in the audit records. Audit evidence is sufficient and appropriate to serve as a basis for forming audit results, conclusions, recommendations and changes to audit results, conclusions and recommendations (if any) .

e) Comply with the laws and regulations of the State Audit Office, implement the Charter and activities of the State Audit Team, regulations on professional ethics and the Code of Conduct of the State Audit Office: Maximum 15 points.

Members of the State Audit Team shall not cause harassment, difficulties, or illegal interference in the normal operations of the audited unit, give or receive bribes, report false or incomplete audit results, take advantage of their positions and powers for personal gain, or disclose information; fully and correctly implement the provisions on the duties, powers, and responsibilities of state auditors in the State Audit Law, the Regulations on the organization and operation of the State Audit Team, and other relevant documents; fully comply with the provisions on



professional ethics of state auditors; not to do work that affects their personality or harms the results of their public duties, affects the reputation of the State Audit Office, etc.; to perform work with caution and be responsible for keeping national secrets and professional secrets of the audited unit; to protect information collected from audit units and internal information of the State Audit Office; to use cards and wear uniforms in accordance with the regulations of the State Audit Office.

g) Management and inspection, review of audit activities: Maximum 10 points.

Requirements for management and inspection and review of audit activities: Comply with the regulations on organization and operation of the State Audit Team; inspection and control are fully implemented at all control levels according to the provisions of the State Audit Law, the regulations on audit quality control and the regulations of the State Audit; follow the order and procedures for inspection and control according to regulations; ensure the quality of inspection and control.

The audit is awarded bonus points in the following cases:

- Time to issue the Audit Report earlier than the prescribed deadline: Within 45 days after the end of the audit at the unit, if the audit report is issued earlier for each 1 day, an additional 0.5 points will be added.

- Large scale and complex nature: Large-scale audit teams (according to the Audit Decision, the Audit Team has 40 or more people and the number of audited units is 30 or more) are awarded from 2 to 5 points; highly complex audits (assessed according to audit content objectives and issues arising in the organization conducting the audit) are awarded from 2 to 10 points.

- A new audit (in terms of subject, content, process, method...) is awarded 10 points; an audit with new audit findings or particularly important audit findings is awarded from 5 to 15 points.



Table 4.2: Scoring and quality classification results of bank audits conducted by the State Audit Office in 2017


TT


The audit

Total number of financial settlement recommendations

(trđ)

Number of proposed amendments

Quality scoring and ranking results

KT Group

Point

Sort

type


1

Audit Team of 2016 Financial Report of Joint Stock Commercial Bank for Industry and Trade

Vietnam


166,771


0


95.5

Excellent


2

Audit Team Annual Financial Statements

2016 of Joint Stock Commercial Bank for Foreign Trade of Vietnam


166,401


1


97.0

Excellent


3

Audit team of the Bank's 2016 financial statements and activities related to the management and use of state capital and assets

Global Petroleum LLC


92,715


0


90.6


Obtain


4

Audit team of the 2016 Financial Report and activities related to the management and use of state capital and assets of the State Bank

Vietnam Cooperative Bank


286,684


0


91.5


Excellent


5

Audit team of the 2016 Financial Report, activities related to public finance and public asset management of the State Bank

Vietnam State Bank


7,244


10


95.0


Rather


6

Audit team of the 2016 Financial Report, activities related to public finance and public asset management of the State Bank

Ocean Trading Company Limited


119


0


91.5


Excellent

7

Financial Statement Audit Team, the

activities related to financial management

17,308

1

96.5

Export

sharp


Public assets in 2016 of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)

Source: Summary report of the Department of Regime and Quality Control, 2017 2

The audit team is classified into four levels: Excellent, Fair, Satisfactory and Limited quality. Table 2.3 shows the results of scoring and classifying the audit quality of bank audits conducted by the State Audit Office in 2017. Of the 7 bank audits, 5 audits achieved excellent quality with the highest score of 97/100 points, 1 audit was classified as Fair and 1 audit was classified as Satisfactory. Although achieving 95/100 points, the State Bank of Vietnam Audit Team was only classified as Fair because the financial settlement recommendation was 7,244 million VND (to be classified as Excellent, the financial settlement recommendation must be above 100 points).

30,000 million VND). With the Audit Team of Global Petroleum Commercial Joint Stock Bank (90.6/100 points but only classified as Satisfactory) is due to the slow release of the report compared to current regulations.

The State Audit Office has detailed regulations on scoring to assess the quality of audits, however, the scoring is still subjective because there is no external unit involved in the scoring process. The scoring is currently carried out by the Audit Quality Control Team of the Audit Regime and Quality Control Department.

4.2.3. Current status of banks assessing the quality of financial statement audits performed by the State Audit Office

Appendix 02 is an in-depth interview questionnaire for leaders of banks audited by the State Audit, thereby assessing the quality of financial statement audits of banks conducted by the State Audit and the solutions that banks have implemented to improve governance activities based on audit reports.


2 In 2018 and 2019, the State Audit did not focus on scoring audit teams in the finance and banking sector, so there are no specific figures. Global Petroleum Bank Limited and Ocean Commercial Bank Limited are zero-dong banks, which were only audited in 2017. The audits related to these two banks and the State Bank are confidential documents with different audit methods than regular audits, so they are not within the scope of the Thesis.



Through in-depth interviews with 7 leaders who are General Directors/Deputy General Directors or Heads of the Board of Supervisors of audited banks, the leaders all rated the audit quality quite highly (equivalent to 4.6/5 points) and said that the State Audit's audit activities have helped banks re-evaluate and adjust many of their management activities to increase transparency and higher operational efficiency. Specifically:

- Regarding financial and accounting management: Banks have adjusted accounting books according to the conclusions and recommendations of the State Audit; rectified existing problems in financial and accounting management in the management of money, fixed assets, debts, revenue, income, expenses, and provisioning for credit risks.

- Regarding investment management: banks have strengthened supervision of investments, especially supervision through capital representatives, investment evaluation, divestment according to schedule, etc.

- Regarding credit activities: rectify existing problems in the stages before, during and after lending (for credit institutions) such as improving the quality of appraisal work, closely appraising the source of debt repayment, fully analyzing risks, correctly determining the loan demand and loan term, fully assessing the feasibility and effectiveness of the loan plan, rectify existing problems in legal documents, collateral documents, regularly and periodically re-evaluating collateral and accounting according to regulations, reviewing early recovery of loans that are not in accordance with regulations, classifying debts and setting up provisions, reviewing the overall reduction of accrued interest that is considered difficult to recover, recovering interest exemption and reduction fees for customers that are not in accordance with regulations, etc. Bank leaders said that banks have seriously implemented the following measures:

Audit recommendations of the State Audit Office. Of which, 80.2% of the recommendations on financial handling have been implemented, and the recommendations on financial management and accounting of banks have been basically implemented. However, many banks have not implemented the recommendations sufficiently and on time. At the time of the interview in March 2020, the banks responded to the implementation of the recommendations of the 2017-2018 audit report as follows: At the Vietnam Bank for Social Policies (VBSP), in addition to the recommendations related to financial and accounting management, VBSP has implemented 22/31 recommendations of the State Audit Office, 6/31 recommendations are being implemented. At the Vietnam Bank for Agriculture and Rural Development (Agribank), 21/40 recommendations of the State Audit Office have been implemented, 19/40 recommendations are being implemented. At the Development Bank



Vietnam (VDB), has implemented 6/14 recommendations of the State Audit Office, 8/14 recommendations are being implemented. The reason for the difficulty in implementing those recommendations is that some recommendations (mainly related to recommendations on perfecting policy mechanisms, perfecting procedures for applying for land use right certificates, and settling long-term debts...) are currently in the process of implementation. The objective reason is that it involves many parties and many competent authorities, so it takes time to implement. Therefore, the leaders of the banks also proposed to extend the time for implementing the recommendations.

4.2.4. Current status of financial statement audit quality of the State Audit Office: audit case at the Vietnam Bank for Social Policies (VPBS)

VBSP was established with the goal of being a bank to serve the poor, implementing preferential credit policies for the poor and other policy subjects. VBSP's operations are not for profit, the State guarantees payment capacity, the required reserve ratio is 0% (zero percent), does not have to participate in deposit insurance, is exempt from taxes and other payments to the State budget. VBSP is allowed to perform operations such as: capital mobilization, lending, payment, treasury and receives preferential loan trust capital from local authorities, economic, political and social organizations, associations, unions, non-governmental organizations, domestic and foreign individuals investing in socio-economic development programs and projects.

During the period 2015-2019, the Vietnam Bank for Social Policies (VBSP) was audited by the State Audit Office four times in 2015, 2016, 2017 and 2018. Therefore, VBSP was selected for research to supplement a more comprehensive and clearer picture of the quality of financial statement audits conducted by the State Audit Office.

Audit contents at VBSP include:

- Auditing financial statements (assets, capital sources, revenue, expenses, payments to the state budget, etc.); final settlement reports on investment capital/investment expenses;

- Auditing credit activities; data on bond issuance guaranteed by the Government; State budget funding to compensate for interest rate differences and management fees;

- Auditing evaluates the economy, effectiveness and efficiency in the management and use of public finance and public assets (focusing on evaluating the performance of the program).

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