The Role Of The State Bank In Stabilizing The Financial System

Vietnam with regard to the activities of the above banks by Vietnam’s KTNN.

Focusing only on the audit activities of KTNN which aim to contribute to the stability of the banking system in particular and the stability of Vietnam's financial system in general, including: Central Bank, NHNo, NHNT, NHCT and NHCSXH, and do not study the cases of bank audits performed by other auditing companies.

6 RESEARCH METHODS

In order to implement the thesis’s objectives, the author uses qualitative research methods, as follows: (i) Interpretation and induction methods are used to systematize the theories related to KTNN for banking operations; (ii) Descriptive statistics are used to analyze and assess the status of banking audit activities by KTNN; (iii) Methods of analysis and synthesis are used to propose solutions to improve the banking audit quality by KTNN in Vietnam; (iv) The expert method is used to examine the advantages and disadvantages in the management of the Central Bank, NHCSXH, NHNN, NHNT and NHCT to perfect the audit process and improve the audit quality at these banks.

Methods of data collection: Secondary data in the study were collected from sources such as textbooks; legal documents; internal regulations of Vietnam State Audit; bank audit reports by KTNN as a result of auditing central banks, NHNo, NHNT, NHCT and NHCSXH, and partners’ financial reports, auditors' reports when participating in auditing banks; previous studies, web pages, audit-accounting journals, ...

Experts method.

7 CONTRIBUTION OF THE TOPIC

This research has a significant value and is valid both theoretically and practically for many different subjects. Specifically, (i) the thesis clarified the role of the KTNN in the operations of the banking system, clarified the role in managing the use of state budget, state assets, and the use of public resources in the banking system; (ii) The thesis has practical value in early risk warning as an effort to limit financial losses to state-owned banks; (iii) The thesis has proposed micro and macro solutions to improve KTNN’s quality for banks' activities; (iv) The thesis has helped state agencies to improve legal documents in the banking system and assisted state-owned commercial banks in the improvement of internal control system, improving the quality and efficiency, contributing to stabilizing the national financial system, etc.

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(v) Research results of the thesis serve as references for banks, researchers, universities on KTNN in the relation to the operation of the banking system.

8 THESIS STRUCTURE

The thesis content consists of 3 chapters:

Chapter 1: Overview of the State Audit's banking audit and financial system stability. Chapter 2: State bank audit situation in Vietnam of the State Audit.

Chapter 3: Solutions to improve the quality of banking audit by the State Audit Office in order to stabilize the Vietnamese financial system.

CHAPTER 1. OVERVIEW OF BANK AUDITING BY STATE AUDITORS AND THE STABILITY OF VIETNAMESE FINANCIAL SYSTEM

1.1. OVERVIEW OF BANK AUDIT ACTIVITIES OF STATE AUDITORS

1.1.1. State Auditor

1.1.1.1. Audit concept

Audit is a process during which independent and competent experts with professional skills collect and evaluate quantitative information of an entity for the purpose of confirming and reporting on relevance between this information and established standards.

1.1.1.2. State audit activities

Audit activities of the KTNN are the assessment and confirmation of the truthfulness and authenticity of the state financial information, state assets or financial statements related to the management and use of state budget and property as well the observance of laws and the efficiency in the management and use of state budget and assets.

1.1.1.3. Functions and duties of state audit

KTNN has the functions to evaluate, confirm, conclude and recommend the management and use of state budget and state assets.

1.1.2. Banking and banking audit by the State Auditors

1.2.1.1. State-managed banks

Central bank: The central bank is an institution whose main task is to control a country's currency and banking system. The Central Bank may also be assigned other duties, depending on the country's financial structure and environment.

State-owned commercial banks: State-owned commercial banks are commercialbanks in which the State-owned commercial banks comprise of commercial bankswith 100% state-owned capital ( According to Decision 47/2010/QH12)

Vietnam Bank for Social Policies: According to Decision 131/2002 / QD-TTg, NHCSXH is a credit institution under the Government of Vietnam with the purpose of lending to poor households and other beneficiaries.

1.2.1.2. Bank audit activities

Banking audit is a process where independent and competent experts with professional skills gather and evaluate evidence from quantifiable information of a bank for the purpose of certification, and report the relevance of this information to the established standards (Auditing Law No. 81/2015 / QH13).

1.2.1.3. Quality of bank audit

According to the International Auditing and Assurance Standards Board (IAASB), audit quality is the ability of the Auditor to give a reasonable opinion on the audited financial statements based on the collection of sufficient and appropriate audit evidence, and the audit is conducted with full compliance with the professional ethical standards of the audit, including ethical values and appropriate conduct; with sufficient knowledge, experience and sufficient time to perform the audit; audit process and procedures and quality control audit being applied seriously and completely; Valuable and timely audited reports being provided; Audit reports meeting the needs of different audiences.

+ Factors affecting the audit quality of state audits: On the independence of audit activities; Independence of budget; Independent staff management; On the opinion of the audit leader; Organizational structure, mechanism of assignment, assignment of duties; Staff policy; Provisions on audit standards, procedures and methods; Regulation, procedure and quality control activities; Professional ethics and auditors' qualifications and competencies:

1.2.1.4. Auditing methods and techniques

Auditing methods and techniques include: Balancing method, Reconciliation method, Inventory Count method, Systematic investigation technique, tests of control, communication and consultation of Department and Agents of State Bank (According to Decision No. 11/2017 / QD-KTNN dated November 21, 2017 of the General Auditor).

1.2. FINANCIAL SYSTEM (HTTC) AND STABILITY OF FINANCIAL SYSTEM

1.2.1 Financial system

1.2.1.1 Concept

The financial system includes the main elements of financial market, financial institutions, financial infrastructure, performing its functions "smoothly", contributing to the effective allocation of resources within the economy. According to Frederic S. Mishkin (2004), financial markets (bond and stock markets) and financial intermediaries (banks, insurance companies, pension funds) have a basic function of channelling capital from individuals with capital to people who lack capital. These are the components of the financial system and its operations has contributed to the allocation of capital resources in the economy more effectively.

1.2.1.2 Stages in the financial system

HTTC is a collection of different financially-related groups (financial stages) formed during the process of creating, managing and using certain funds and monetary sources. These financially-related groups are considered as each financial stage. Gather all the financial stages to form the financial system, including (i) State Finance stage; (ii) Corporate finance stage (iii) Household financial and social organizations stage.

1.2.1.3 Role of the financial system

The roles of the financial system include: (i) Tools for distributing gross national product and (ii) Tools for managing and regulating the macro economy.

1.2.1.4 Functions of the financial system

The basic function of the FC is to create a channel to transfer capital from the capital surplus to the need. When the system operates effectively, it contributes to economic growth and increases social welfare.

1.2.1.5 Classification of financial system

There are two classifications: (i) According to financial aggregates, the characteristics of financial relations are divided into financial stages; (ii) According to ownership of financial resources, financial system is divided into State Finance and Non-State Finance; The third classification: According to the purpose of using financial resources, the financial system is divided into state and private finance; The fourth classification: According to the scope of financial activities, taking the country as the subject, the financial system is divided into domestic finance and international finance.

1.2.2 Stabilizing the financial system

1.2.1.1. Concept

Financial stability is a state in which the financial market, financial institutions and financial infrastructure perform their functions "smoothly", contributing to the efficient allocation of resources of the economy and increasing the ability to limit and shoulder shocks to avoid potential collapses.

1.2.1.2. The role of the State Bank in stabilizing the financial system

The role of the central bank and state-owned banks in stabilizing the financial system is as follows (i) Maintaining financial stability; (ii) Financial stability enhances the effectiveness of monetary policy; (iii) The Central Bank maintains financial stability through the efficiency of the payment and clearing system.

1.2.1.3. The financial system’s soundness indicators

Unlike price stability, financial stability is not easily identified or measured due to the interdependence and complex interactions of different elements of the financial system and the economy. Financial stability is difficult to define and even more difficult to measure. For the past two decades, researchers from central banks around the world have been trying to capture financial stability conditions through various indicators of financial reporting vulnerabilities. Many central banks adopt financial stability reports (FSR) to assess the risk to financial stability by focusing on a small number of financial soundness indicators (FSI).

1.3. RELATIONSHIP BETWEEN THE BANK AUDIT ACTIVITIES AND THE STABILITY OF THE NATIONAL FINANCIAL SYSTEM

Within the governing mechanism of each country, the central bank and the system of state-controlled central banks are of special importance, a great channel of capital supply for the economy to implement the macroeconomic targets of the economy. State Bank is autonomous in formulating and managing monetary policy, interest rates and exchange rates, performing the function of the real central bank, and is the bank that issues money and serves as bank for other banks, being the national payment center, regulating the currency market. State-owned banks govern the implementation of policies and concretize the development path through credit policies. It can be seen that the central bank and the state-owned banks obtain capital from the national financial sources, funds and state assets in the course of operations. Because the central bank and the state-owned banks use the national financial resources, KTNN plays a very important role in the inspection and supervision of the use of these financial sources effectively. Therefore, there are a wide range of subjects that need to be audited by KTNN, namely all national resources, funds and assets, and relevant organizations and individuals that manage and use national

finance, funds and state assets. KTNN can be seen as a specialized tool in reviewing and controlling financial activities, ensuring a really healthy financial system.

1.4. INTERNATIONAL EXPERIENCES RELATED TO BANK AUDIT BY STATE AUDITOR AND LESSONS FOR VIETNAM

1.4.1. Audit experience in the public sector of state audit in countries Experience of excessive budget waste of the Ministry of Defense of Malaysia Sierra Leone's experience in funding fraud and tax evasion and weak management

Experience from Kenya on the embezzlement of state budget, tax evasion and weaknesses in the audit administration.

Experiences from the United States of America regarding the frauds in granting driving licenses in the State of California.

1.4.2. Lessons for Vietnam in the management and administration of state audit activities in the public sector

The Government should implement many measures to save budget and increase state revenue

Regularly review the list of employees, review payroll and documents for the retired to stop paying for these individuals.

The Office of the General Auditor requires that the Board of Directors and the accounting department of the Ministries and branches directly under the Government provide all valid documents of withdrawing the money from the budget within one month and submitting the financial Statements on time to serve the annual audit.

Improve the oversight of citizens

Consistent policies are needed to monitor regional offices, and overcome ineffective information exchanges, weakness in state budget planning, delays in improving public services.

CONCLUSION OF CHAPTER 1

In Chapter 1, the author presented the concepts of audit, state audit, state-owned commercial banks, audit quality, experience and lessons learned from KTNN in other countries.

CHAPTER 2: CURRENT SITUATION OF BANK AUDIT ACTIVITIES BY

VIETNAM’S STATE AUDITOR

2.1. CURRENT SITUATION OF BANK AUDIT OF VIETNAM’S STATE AUDITOR

2.2.1 Central bank audit (NHTW); Vietnam Bank for Agriculture and Rural Development (NHNo) Audit; Vietnam Industrial and Commercial Bank Audit (NHCT); Vietnam Bank for Foreign Trade audit (NHNT); Vietnam Bank for Social Policies (NHCSXH)

+ Evaluation method: Based on Decision No. 11/2017 / QD-KTNN dated November 21, 2017 of the State Auditor General.

+ Auditing activities:

The central bank audit activities include auditing income, expenses and operating results; the implementation of monetary policy; state management of DTNH; and interbank market operation activities.

Audit activities for commercial banks with state-owned capital, including NHNo, NHCT, NHNT include: specifically audits on the compliance with laws, policies, financial regimes, accounting, management and use of capital, state assets; The economy, effectiveness and efficiency in management and use of state capital, money and assets.

NHCSXH audit activities include auditing activities: Loans for employment purposes, Loans for poor households, Loans for students, and interest rate compensation scheme and management costs.

2.2. RESULTS OF EXPERTS SURVEY

2.3.1. Survey method

The author prepares a survey questionnaire to assess factors affecting KTNN’s quality in the audits of central bank and state-owned banks in order to collect experts' opinions on: (i ) Audit planning work; Audit implementation; (iii) Synthesization, conclusions and reporting. The basis for selecting experts includes criteria such as: Having worked and directly worked as an auditor of the central bank or state-owned banks for 8 consecutive years, or researched on KTNN over 10 years.

The survey was conducted using a sample of 50 experts who have been working in the KTNN and have participated in many audits of the central bank and state-owned banks. Total votes sent: 50 votes; Total votes collected: 50 votes (100% of the votes issued).

2.3.2. Survey result

Figure 2.1: Current working position of experts participating in the survey Figure 2.2: Time to participate in the audit

Figure 2.3: Position when participating in the audit Chart 2.4: Male / Female ratio

Survey results on planning, implementation, synthesis, conclusions and reporting show that there are still issues. The summary of the of survey results of experts in the field of auditing of NHNN on the audit cycle serves as the basis for the author to evaluate the quality of audit activities at NHNN, improve KTNN quality at the central bank and the state-owned banks, thus contributing to stabilizing the national financial system with relation to the fields of currency and credit management.

2.3. ASSESSMENT OF BANK AUDIT RESULTS AND THE STABILITY OF THE FINANCIAL SYSTEM

2.4.1 For central banks

In the 2014-2018 period, the central bank’s auditing results are as follows:

+ Auditing the administration of monetary policy of the State Bank, especially the operation of the open market, reveals that: In the period of 2015-2018, NHNN has basically ensured the administration of open market operations, contributing to ensuring a stable liquidity for credit institutions through flexible management of open market operations, thus supporting the goal of stabilizing the exchange rates.

Auditing of interest rate policy: The audit shows that the central bank implemented monetary policy closely, and the actual inflation rate is lower than the rate assigned by the National Assembly; The credit administration of the State Bank of Vietnam facilitates the reach of credit growth targets assigned by the National Assembly and the Government.

Auditing and assessing the management of exchange rates: According to the audit results of the State Audit, the central bank has implemented the decisions on the exchange rate management, the central bank changed the exchange rate management mechanism to flexible exchange rates regime in 2015, and there were positive changes in the period of 2016 - 2018. In addition, the central bank used the intervention plan to buy foreign currency in the market in 2018 for the 3-month foreign currency term. This conclusion also shows that step by step, KTNN helps improve the central bank's management of exchange rates.

Auditing the refinancing activities: Through the audit, the State Audit has suggested that the central bank needs to improve the refinancing activities because for many years outstanding loans at some commercial banks have not been recovered, leading

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