Sureying the internal creadit audit in Petrolimex group commercial joint stock bank

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1.2. Problematic of research: From those reasons I mentioned above, I choose the research project: “Sureying the internal creadit audit in Petrolimex group commercial joint stock bank”. 1.3. Research objectives: Research objectives are to clarify the theory of internal audit work in enterprises in general, banks in particular and the actual situation of internal creadit audit works in Petrolimex group commercial joint stock bank. 1.4. The questions are posed in the study: What is the theory of internal audit work in enterprises in general and in banks in particular? Is internal creadit audit of Petrolimex group commercial joint stock bank reliable? Is internal audit process, regulations and administration in Petrolimex group commercial joint stock bank lose? Is organization of internal audit work in Petrolimex group commercial joint stock bank. In compliance with basic principles? What are shortcomings? Specifically as follows: How the internal creadit audit look like? Organizational structure of internal auditing like? The internal creadit audit process is closely organized? Organized testing, quality control, internal creadit audit? 1.5 Object of research: Petrolimex group commercial joint stock bank 1.6 Scope of research Although internal audit is an essential tool for all types of organizations, the topic only focuses on internal creadit audit work organization in Petrolimex group commercial joint stock bank. 1.7. Research methodology: 1.8. Contribution of research The topic helps clarify the perception of internal audit work in general and internal creadit audit work organization in Petrolimex group commercial joint stock bank.in particular. Assessment of the situation of internal creadit audit work in Petrolimex group commercial joint stock bank is to synthesis and makes some proposals for improvement of internal creadit audit work in Petrolimex group commercial joint stock bank. 1.9. Structure of thesis Besides thanks, contents, list of diagrams and references, structure of thesis include four chapters. Specifically: Chapter 1: Overview research on internal audit Chapter 2: Some basic theory on the organization of internal audit work Chapter 3: Research Methodology and organisation of internal creadit audit at Petrolimex group Commercial Joint Stock bank. Chapter 4: Conclusions, discussions and recommendations to improve the internal creadit audit system at Petrolimex group Commercial Joint Stock bank. 1.2 Problematic of research: 1.3 Research objectives: 1.4 The questions are posed in the study: 1.5 Object of research: .2 CHAPTER II: THEORETICAL FRAMEWORK .4 2.1 Some concepts and theories of internal audit .4 2.1.1 Internal audit definition .4 2.1.2 Some theories of internal audit in commercial bank 2.1.3The function of internal audit .9 2.1.4 Basic principles of internal audit activity 10 2.1.5 Content of internal audit 11 CHAPTER 3: RESEARCH METHODS AND ORGANISATION 13 3.1 Research method .14 3.1.1 Data collection method 14 3.1.2 Data analysis method: 16 I The objective of the audit credit activitiess 16 II Requirements of internal audit credit activities .17 III Scope of audit credit activities .17 IV The main audit methods .17 V Content audit credit activities 18 Part A Audit at the audited units .18 Risk assessment related to credit activities 18 Assessing the performance of the audit statute 18 Quality assessment activities of the credit control system in the unit audited 19 Perform audit procedures, regulations 19 Part B Check to compare directly with borrowers 25 Debt validation 25 Check the use of loan 26 Check the status of assets to ensure debt 26 Inspection of the project and repayment of the business (clients are business loans) 27 VI Prepare and submit audit report 28 Establish an audit report: 28 Send an audit report: 28 VII Follow up audit 29 VIII Form audit credit operations .29 CHAPTER IV: CONCLUSIONS AND RECOMMENDATIONS 43 4.1 Conclusions and recommendations 43 4.1.1 Proposals and recommendations: .43 1.2 Problematic of research: From those reasons I mentioned above, I choose the research project: “Sureying the internal creadit audit in Petrolimex group commercial joint stock bank” 1.3 Research objectives: Research objectives are to clarify the theory of internal audit work in enterprises in general, banks in particular and the actual situation of internal creadit audit works in Petrolimex group commercial joint stock bank 1.4 The questions are posed in the study: What is the theory of internal audit work in enterprises in general and in banks in particular? Is internal creadit audit of Petrolimex group commercial joint stock bank reliable? Is internal audit process, regulations and administration in Petrolimex group commercial joint stock bank lose? Is organization of internal audit work in Petrolimex group commercial joint stock bank In compliance with basic principles? What are shortcomings? Specifically as follows: How the internal creadit audit look like? Organizational structure of internal auditing like? The internal creadit audit process is closely organized? Organized testing, quality control, internal creadit audit? 1.5 Object of research: Petrolimex group commercial joint stock bank 1.6 Scope of research Although internal audit is an essential tool for all types of organizations, the topic only focuses on internal creadit audit work organization in Petrolimex group commercial joint stock bank 1.7 Research methodology: 1.8 Contribution of research The topic helps clarify the perception of internal audit work in general and internal creadit audit work organization in Petrolimex group commercial joint stock bank.in particular Assessment of the situation of internal creadit audit work in Petrolimex group commercial joint stock bank is to synthesis and makes some proposals for improvement of internal creadit audit work in Petrolimex group commercial joint stock bank 1.9 Structure of thesis Besides thanks, contents, list of diagrams and references, structure of thesis include four chapters Specifically: Chapter 1: Overview research on internal audit Chapter 2: Some basic theory on the organization of internal audit work Chapter 3: Research Methodology and organisation of internal creadit audit at Petrolimex group Commercial Joint Stock bank Chapter 4: Conclusions, discussions and recommendations to improve the internal creadit audit system at Petrolimex group Commercial Joint Stock bank CHAPTER II: THEORETICAL FRAMEWORK 2.1 Some concepts and theories of internal audit 2.1.1 Internal audit definition Internal audit has come a long way over the last two or three decades In the past, internal audit was seen as a mechanism to double – check the many thousands of financial transactions that were posted to the accounts each week In the 1950s and 60s, it pretty much consisted of basic tests of the accounts with a view to isolated errors and irregularities Huge standardized audit work programs would be prepared that determined the steps that had to be taken to verify figures in the main accounting ledger and feeder systems In contrast, today’s internal auditor facilitates the development of suitable controls as part of a wider risk strategy as well as providing assurances on the reliability of these controls The move from detailed low-level checks of huge volumes of mainly financial transactions to high-level input into corporate risk strategies has been tremendous Other industries also expanded their internal audit programs, and in 1941 the Institute of Internal Auditors was born to herald a distinctive a discipline quite apart from public accounting The definition of internal auditing began to evolve In Latin ‘auditor’ literally means ‘listener’ Nowadays, not that much has changed in the essential elements of auditing if we follow the definition from Arens and Loebbecke (1997, 2): “Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria Auditing should be done by a competent independent person” Furthermore, internal auditing in the Standards for the Professional Practice is defined in this way: “Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activation as a service to the organization.” Auditing Standard ASA 610 Considering the Work of Internal Audit, issued by the Auditing and Assurance Standards Board (AUASB) defines internal audit as follows: Internal audit” means an appraisal activity established within an entity as a service to the entity Its functions include, amongst other things, monitoring internal control” The objective of internal audit to assist members of the organization carries out their responsibilities effectively It equips them how to analyze, evaluate, suggestions, recommendations and information concerning activities reviewed The objective of internal audit framework also gives effective control at reasonable cost - Loyal to the nature of the audit, independence in internal audit is given top priority Internal auditors are independent when they can perform their work in a free and objective manner In reality, as they are members of an organization, the meeting of this requirement can be more difficult than State auditors and independent auditors Therefore, this independence is only relative In fact, all cases, scope, progress and effectiveness of internal audit work should not be limited by any things If so, internal auditors can get the desired results To this end, internal auditors should have equal status and necessary independence  To ensure the independence, first of all, internal auditors conduct a review of any findings related to the organization Based on surveys, initial research, their professional skills, they consider and assess activities of the organization Results obtained from the review and assessment will form a basis for them to clarify and give consultations for the next operations  Result of internal audit is a great support for members of organizations such as the Board of Management, Board of Directors, shareholders, and all staffs Therefore, the scope of the work is very widespread and it affects all activities of the organization It is the reason why internal audit is established as a division of the organization According to the professional guidance of the Institute Internal Auditors (IIA), public sector governance encompasses the policies and procedures used to direct an organization’s activities to provide reasonable assurance that objectives are met and that operations are carried out in an ethical and accountable manner In addition, the Institute of Internal Auditors (IIA) has developed the globally accepted definition of ‘internal auditing’ as follow: “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization It helps an agency accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes” According to this definition, an internal audit function could be viewed as a first line defense” against inadequate organizational governance and financial reporting With appropriate support the Board of Directors’ and Audit Committee (if any), the internal audit staff is in the best position to gather intelligence on appropriate accounting practices, inadequate internal controls, and infective corporate governance The scope of internal audit activity embraces the wider concepts of corporate governance and risk – recognizing that control exists in an organization to manage risk and promote effective governance The remainder of the IIA’s definition of internal auditing covers a number of important terms that apply to the profession  The term independent is used for auditing that is free of restrictions that could significant limit the scope and effectiveness of any internal auditor review or the later reporting of resultant findings and conclusions  The word appraisal confirms the need for an evaluation that is the thrust of internal auditors as they develop their conclusions - The term established confirms that an internal audit is formal, definitive function in the modern enterprise  The phrase examine and evaluate describe the active roles of internal audit work that applies to all of the activities of the modern enterprise  The word service recalls that the help and assistance to the audit committee, management, and other members of the enterprise are the end products of all internal audit work  The phrase to the organization confirms that internal audit’s total service scope pertains to the entire enterprise, including all personnel, the board of directors and their audit committee, stockholders, and the owners For the banking and credit institution in Vietnam, aaccording to No.37/2006/QDNHNN, Decision of the governor of the State bank of Vietnam on the issuance of the Regulation on internal audit of credit institutions, defined ““Internal audit” is an act of independent, objective inspection, verification, assessment for the internal inspection, control system; independent assessment of the appropriateness and compliance with policies, procedures and process which are set up in the credit institutions, whereby the unit performing internal audit shall provides proposals, advices for the purpose of enhancing the operation effectiveness, efficiency of systems, processes, provisions, making contribution to the assurance of the prudential, efficient and lawful operation of credit institutions As such, according to this definition, internal audit is conducted in the organization by its staff and ensured by independence and objectiveness That is, it is not hindered by any divisions or objects when determining work scope, work performance and work result reporting At the same time, internal auditors must be impartial, fair so as to not to be dependent on or dominated by others The term “Internal Audit” itself expresses its particular characteristic and nature Based on the origin and different forms of internal audit, we can see that internal audit appears and develops due to objective needs From the above analysis, we can draw the nature of Internal Audit is an independent division of a organization performing examination, assessment work and giving recommendations of improvements on its activities for managers’ objectives 2.1.2 Some theories of internal audit in commercial bank Theoretical framework for internal auditor in commercial banks is determined by the provisions of the Institute Internal Audit (IIA), Basel Committee, Ministry of Finance, and State Bank of Vietnam - The Institute of Internal Auditors (IIA) is the primary international professional association, organized on a worldwide basis, dedicated to the promotion and development of the practice of internal auditing The IIA is the recognized authority, chief educator, and acknowledge leaders in standards, education, certification, and research for the profession worldwide The Institute provides professional and executive development training, educations products, research studies, and guidance to more than 122,000 members in more than 100 countries From 1941, IIA has been well equipped to help members to meet generally accepted professional standards by:  Issuing ethical law  Approving an announcement on responsibility of internal auditors  Establishing frequent training program  Building general knowledge content Approval of professional standards is one of important steps in the development process of internal audit Professional standards of internal audit are the result of great efforts made by the Committee in three years They are tools for professional activities in all business fields at various levels of the Government and organizations where internal audit appear Basel Committee established in 1974 by central bank governors of 10 countries, this Commission to develop and publish standards relating to banking activities Basel Committee in 1988 issued measurement system which consists of 25 basic principles of banking supervision (Basel I) However, after a period of application, the principles of Basel I have shown some weakness Specifically provides only a single measure of risk capital for banks operating on international scale through its own capital indicators on assets adjusted for risk (CAR ≥ 8%) without considering the different nature of the bank risks, the loans and other factors Also, the application of Basel I cannot help countries prevent financial and monetary crisis Basel Committee issued the measure of risk framework (Basel II) on July 01 in 2001 and takes effect in late 2006, replacing the treaty of Basel I Basel II consists of a series of standards aimed at improving monitoring and risk management techniques and is structured in three levels: (i) required minimum capital ratio for credit risks and operational risks, (ii) give directions relating to the monitoring process, (iii) requires banks to provide basic information related to the capital, to ensure that risks encouraging the principles of the market Treaty of Basel II emphasis on methods of control, internal audits in the bank itself, process monitoring and market rules, increase flexibility in the management of risk and greater attention to risk sensitivity Treaty showed specific concepts as well as other measures of risk such as credit risk, market risk, and operational risks Basel Committee encourages each bank should develop a process to monitor and manage operational risks and specific details Should be conducted regularly to monitor all operations, all the chains in the transaction process to make the report warned of defects, errors or omissions in any business policies, operating procedures in bank Ministry of Finance: the main content of Decision No 832/TC-QD-CDKT dated on 28/10/1997 is the developing internal audit regulations for State enterprises Circular No 52/1998-TT-BTC issued on 16/04/1998 guide apparatus internal audit in State enterprises, Circular No 171/1998-TC-BTC replace Circular 52/1998-TT-BTC Based on the characteristics of the sector, State Bank issued QD37/2006/QD-NHNN on 01/08/2006 Decision guides the internal audit regulations apply to credit institutions 2.1.3The function of internal audit Internal audit’s function is both to verify and express opinions, control and consult Control is the first function of internal audit which is similar to verification function of general audit It is the control function that decides to the appearance of internal audit It is said that Internal Audit is an organized type whose function is to measure and assess the effectiveness of other controls An organization set objectives for divisions and follow up them The next work is to use internal audit to measure and assess other existent controls As such, internal auditor’s role is controller to understand the nature and scope of other controls Specifically, internal audit is to “assess and measure accurately the level of risks relating to management systems, activities and information provision system of the organization Based on results of risk evaluation, internal auditors must assess the propriety and effectiveness of activities and internal control system over these above systems” (Campbell and Timothy, 2003) Therefore, internal auditors both perform their tasks and become experts in designing and performing other controls to get the best result These experts’ skills include their understanding of controls, relation and diversified co-operation in the internal control system Through controls, internal auditors consider and evaluate activities of the organization In fact, their professional fluency of internal auditors cannot be compared to that of people who directly perform these tasks However, they can help related people to get better results by clarifying existent control works and making improvements in the work With the development of internal audit, its function is expanded from control and evaluates the internal control system to evaluate and make improvements in the organization’s activities From an analysis of definitions of internal audit, we see that modern internal audit not only control but also more focus on consulting and assisting audit division in risk management and improvement of work effectiveness Expanded function and role have created positive changes in role of internal audit Internal audit which was originally coercive by managers has become voluntary work of audited divisions (Campbell and Timothy, 2003) Therefore, internal auditors both perform their tasks and become experts in designing and performing other controls to get the best result These experts’ skills include their understanding of controls, relation and diversified co-operation in the internal control system Through controls, internal auditors consider and evaluate activities of the organization In fact, their professional fluency of internal auditors cannot be compared to that of people who directly perform these tasks However, they can help related people to get better results by clarifying existent control works and making improvements in the work With the development of internal audit, its function is expanded from control and evaluates the internal control system to evaluate and make improvements in the organization’s activities From an analysis of definitions of internal audit, we see that modern internal audit not only control but also more focus on consulting and assisting audit division in risk management and improvement of work effectiveness Expanded function and role have created positive changes in role of internal audit Internal audit which was originally coercive by managers has become voluntary work of audited divisions 2.1.4 Basic principles of internal audit activity According to Article of Decision 37/2006/NHNN – QD, banks have to ensure the following principles: * Independence The internal audit department shall operate independently compared with units, managing, professional operation departments of the credit institution; the internal audit activity shall be independent of activities of management, professional operation of the credit institution In the process of auditing or providing accounting services, auditors are not dominated or influenced by any material or spiritual benefits which affect their truthfulness and objectivity and professional independence Auditors are not allowed to perform the audit work at entities where their relatives are working for In the audit process, if there are any factors affecting their independence, the auditors must remove them If not removed, they must be clearly stated in the audit report * Objectiveness The internal audit department, internal auditors must assure the objectiveness, truthfulness, fairness, non-prejudice when they perform the task of internal audit Objectivity is to ensure not to leave out the mistakes, let their opinion on audit report + Audit the efficiency of ability to repay of customers: Check the financial status of borrowers, audit business plan and inspection assets ensuring the loans, check the loan appraisal process + Check the lending decisions - Audit disbursement after the loan: + Check disbursement process + Audit process to monitor use of customer loans + Audit loan recovery process - Audit supported interest rate loans and negotiable interest rate loans 2./Scope of Audit Audit team checked audit content following sample methods, audit records, vouchers and documents by the branch, HO have provided, checked the legality of the documents II Audit results 1./Confirm content part - PG Bank was in compliance with the regulations on loan conditions, loan guidelines, loan approval, monitoring and management during and after the lendeing of customers in QD1627/QD-NHNN and internal regulations of PG Bank - Check the records and documents in PGBank made valid and correct procedures - PGB-held implement according to the regulations on loans and loans under LSTT HTLS under the provisions of 131/QD-TTg on 23/01/2009, TT02/2009/TT-NHNN on 03 / 02/09, TT02/2010/TT-NHNN on 22/01/2010, TT05/2010/TT-NHNN During the process of inspection and internal control in PG Bank has discovered a number of cases funded HTLS improper purposes or to identify objects HTLS wrong, and made HTLS withdrawal amount and repay the state budget - The loans are applied by LSTT right subjects, compliance with provisions of SB on LSTT, there are monthly reports on the application of SB LSTT in PG Bank 2./ Confirm the data Some indicators of credit activities to 30th Septemple 2010 Unit: Milion Dong Headquater Reported Data Aditing Data Difference Terms Total Oustading debt -According to economic % % % sectors + Economic State + Joint Stock Company, 518,992 272,555 52.5% 518,992 272,555 Ltd + Private enterprise + Person + Others 5,6 - According to kind of 216,563 41.7% 216,563 29,874 29,874 loan + Short - term + Middle, long - term - According to kind of 518,992 193,936 37.37% 325,056 62.63% 518,992 193,936 325,056 37.37% 62.63% 0 money + Local Currency + Foreign Currency 518,992 227,334 43.80% 291,659 56.20% 518,992 227,334 291,659 43.80% 56.20% 0 Thăng Long Branch Reported Data Terms % Total outstanding debt 1,283,316 - According to economic sectors + Economic State + Joint Stock Company, Ltd + Private enterprise + Person 1,154,422 89.96% 11,061 0.86% 117,832 9.18% 52.5% 0 41.7% 0 Auditing Data Difference 0 % 0 0 0 1,154,422 89.96% 11,061 0.86% 117,832 9.18% 0 % 1,283,316 - + Others - According to kind of 0 0 loan + Short - term + Middle, long - term - According to kind of 1,283,316 926,945 72.23% 356,371 27.77% 1,283,316 926,945 72.23% 356,371 27.77% 0 0 money + Local Currency + Foreign Currency 1,283,316 1,083,004 84.39% 200,313 15.61% 1,283,316 1,083,004 84.39% 200,313 15.61% 0 Hà Nội Branch Terms Reported Data Auditing Data % Difference % % Total oustading Debt - According to economic sectors + Economic State + Joint Stock Company, Ltd + Private enterprise + Person + Others - According to kind of loan + Short - term + Middle, long - term 2,120,598 166,467 7.85% 1,504,370 7,500 357,361 84,900 70.94% 0.35% 16.85% 4.00% 2,120,598 166,467 1,504,370 7,500 357,361 84,900 2,120,598 2,120,598 1,219,742 57.52% 1,219,742 900,856 42.48% 900,856 0 0 70.94% 0.35% 16.85% 4.00% 0 0 0 57.52% 42.48% 0 7.85% - According to kind of money + Local Currency + Foreign Currency 2,120,598 2,120,598 1,723,452 81.27% 1,723,452 397,146 18.73% 397,146 0 81.27% 18.73% 0 III Conclusions and recommendations of the audit 1./ Synthetic assessment of the credit activities -Review of loan documents: the correct and relatively complete -Assessing the capacity and qualifications of credit quality is relatively good evaluation; make compliance processes of PG Bank credit, the provisions of law -The quality and effectiveness of the loan: normal 2./ Recommendations and suggested edits - The management of the credit lending remains at normal levels, leading to bad debts and overdue debts at the branch still exists Proposed loan officers more closely in the management of debt collection, debt control This is the report on internal audit activities in PG Bank credit CHAPTER IV: CONCLUSIONS AND RECOMMENDATIONS 4.1 Conclusions and recommendations The increasing of society's demand day by day, with force competition in the market, requiring commercial banks to diversify its product portfolio to increase revenue for banks, and distributed risk But among the products that banks providing the credit operation is the basic activity, plays a decisive role with existence of each bank This shows very clearly the scale of credit operations accounted for the largest proportion of total bank assets (about 70%) Bring 80% of revenues for banks But credit is also contained many business risks Credit risk is the potential losses that banks incur when making loans to customers, the losses associated with the customer does not repay the full credit when due Credit risk varied and complex, it depends on the customer (financial status, responsibility with debts) and bank (abilityof management, risk prediction), and this is also the risk are most common in the banking activities Therefore to deal with these risks, the requirement is that the commercial banks have to set up a complex control system, pays special attention to the work of internal audit to credit operations used to monitor individual credit as soon as it arises until the end, the entire process of monitoring the implementation of a credit granted as consideration for loan disbursement, loan monitoring And this also demonstrated that the actual loss and disruption that the commercial banks have to suffer from the loss of internal control systems to ensure safe and efficient operation So, internal audit did not fully accomplish the task, the banks are faced with uncontrolled risks, especially credit risk and consequences of these risks is very unpredictable Thus, the perfection and development of internal audit work in general and internal audit activities credit for a particular essential requirements set for commercial banks to ensure safety in the business of the bank, while improving the efficiency of capital use, improve the quality of bank credit 4.1.1 Proposals and recommendations: After studying the internal audit work organization in commercial joint-stock banks, I would offer the following suggestions: 4.1.1.1 Completing internal audit apparatus: The first and important task is to build and set up a compact but effective apparatus and especially ensure the independence Generally, control activities must be maintained regularly and put into each procedure Internal audit work is associated with the responsibility of each member of banks But the inspection, evaluation, certification, consultation must be made by the examination section of Board of Management Therefore, the first work to be done to complete the internal audit apparatus is: - Criteria for internal auditors: Article of Decision No.37/2006/QD-NHNN does not stipulate the working experience year for an internal auditor, only specify the minimum working experience years in banking for manager and deputy manager As operations of banks are large and complex with imminent risks and internal auditors have less or no experience in banking, especially the working experience years for manager of internal audit department cannot have an in-depth knowledge to manage work effectively In the world, there are no specific regulations on working experience year in internal audit But internal auditors often come from independent audit firms, having a bachelor of finance, law or management and granted Certified Public Accountant certificate (CPA) or Certified Internal Auditor (CIA) In Decision No 832 TC / QD/ CDKT of the Ministry of Finance, in Clause 3, Article 12 stipulates common criteria in all State-owned enterprises (SOEs) that 81 actually work in the financial sector over years, in which work for an enterprise at least years I proposed regulations for internal auditors as follows:  Ensure requirements as prescribed in Article Decision No.37/2006/QD-NHNN  Have a bachelor of banking and finance, accounting, auditing, management and CPA If they not have this certificate, they must work for the banking sector or an independent audit firm for at least years  For the manager of internal audit department: he/she must have CPA and working experience in the banking sector over years and experienced all transactions  Improving professional qualifications for internal auditors: periodically, PG Bank hire outside experts to train internal auditors Currently, PG Bank need to have organized training for new employees for a short-time of a week or organized annual training based on work and plans or appointing some for training course This will limit the ability to update knowledge as well as working skills of auditors to an average time of 80 hours per year To this ends, PG Bank sector should set up a training center of its own to build its training program based on its operations and actual conditions At that time, PG Bank can alternately appoint their staff to learn Requirements for center teachers are deep understanding of internal audit theory in general and the banking sector in particular, having CPA and actually working for the banking sector over years 4.1.1.2 Examining the quality of internal audit work: PG Bank should make out standards for examination of quality of internal audit work Making specific methods for examining quality of internal audit work Relevant departments and divisions should cross check each other directly or indirectly Team leader directly examines records and documents, Board of Management and Control check internal audit work indirectly The goal of examination of internal audit work quality is to provide best audit results and meet the requirements of the Board of Management, Control and Directors in each different stage of development of banks To this ends, a key factor is the role of internal auditors They should promote their competence, responsibility and creativity The examination process of internal audit work quality should be made as follows: Diagram 4.3: Internal audit process Board of Directors Board of Directors Internal Audit Manager Senior in charge Senior in charge Auditor Auditor Notes: : Cross check: direct : check - Identifying the object to be examined; 95  Identifying the content to be examined;  Identifying time of examination In which, the examination content is inside and outside checking  Inside checking of internal audit department is usually conducted by members of internal auditor team to evaluate the quality of the work The review methods are performed as in any audit engagement  Outside checking: the review should be done by qualified and independent persons without having any interest conflicts The review should be done once in every three years Upon completion of the review, an official report in writing should be made The report should express the opinion on the compliance of the department with professional standards of internal audit and recommendations for improvement Step 2: Examination - Checking the system: considering the audit engagement performed by a certain department - Technical checking: reviewing records of each audit engagement Step 3: making conclusions on the quality of internal audit work Step 4: archiving information and documents relating to the checking process of internal audit work quality 4.1.1.3 Improving working conditions for internal auditors: Internal auditors are the most important in determining the results and quality of internal audit work Therefore, commercial joint-stock banks which wish to well perform the internal audit work, need to build bonus and welfare regulations such as salary, allowances and other preferences for their work pressure Furthermore, there must have specific regulations on working equipment and facilities to create favorable conditions for internal auditors to work such as stationery, computer, other equipment, etc At the same time, the role of internal auditors must be enhanced by empowering them the rights to access databases, executive management software 4.1.1.4 Combination of internal and external auditing As in current practices, internal audit work is performed by staff of banks To ensure objectivity and reduce time and efforts, banks should hire external inspection force after considering the possible risks External inspection force includes: State Bank inspectors, tax agencies, independent auditors 4.1.1.5 The informatics department should be audited Informatics department is an important part of banks, the backbone directly influencing the success and development of banks, especially in the current competitive environment If banks compete in terms of technology, perfect and useful service for customers, only informatics department can turn business ideas into reality Moreover, recording and keeping information confidential is extremely important If the security policy of a bank is not good, customer information may be disclosed or changed Currently, no banks conduct the audit work for the informatics department; I propose solutions to audit the informatics department 4.1.2 Recommendations 4.1.2.1 For the Government: The Government should expeditiously issue guidelines (decrees, circulars) laws that have been promulgated and effective such as the Law on Amendment of Credit Institution Law, law on electronic transactions, etc These guidelines should be consistent The making and adjustment of legal documents should be based on strict compliance with international standards and practices with regards to Vietnamese conditions Reform of administrative procedures, minimization of time and procedures of public authorities relating to operations of banks should be enhanced (especially procedures for notarization and registration of security transactions) Also, on the basis of international standards on internal audit and practices of developed countries, competent branches and sectors at all levels should organize seminars to soon make internal audit standards and banking internal audit in line with characteristics and situation of Vietnam 4.1.2.2 For the State Bank of Vietnam As a management agency of Commercial Joint Stock Banks, the State Bank plays a very important role in guiding the development and completion of internal audit activities of Commercial Joint Stock Banks To facilitate the implementation and efficiency of internal audit activities, I would like to propose some following issues:  The State bank should open training courses on internal audit for internal auditors  The State bank should promulgate internal audit manual for commercial joint- stock banks as a basis for making a manual of each bank - Issuing a sample procedure for the internal audit work On 10 August 2006, the State Bank issued sample procedures for internal audit work of credit institutions Based on these procedures, the State Bank prescribes that credit institutions build an internal audit procedure in line with their operations However, there are many Commercial Joint Stock Banks that are confused in this matter Therefore, the State Bank should make an internal audit procedure sample as a basis for commercial joint-stock banks to make their own internal audit procedure At that time, internal auditors can refer to it for their work REFERENCES  Arens, A.A and J.K Loebbecke (1997), Auditing An Integrated Approach, edn, Prentice-Hall, New Jersey  Chuck Cambell and Timothy J.Higgins 2003, management auditing PACE level, th edition, CGA - Canada  Abdulrahman A.M.AL – Twaijiry, John A.Brierly, Dvidn R.Gwilliam (2004), An examination of relationship between internal and external audit in the Saudi Arabian corporate sector, Managerial Auditing Journal  ISO 9001 – 2000, Internal Audit Program  Information Systems Audit and Control Association (2000), Use of Risk Assessement in Audit Planning (Revision of Previously Issued SISAS 5)  The International Auditing Pratices Committee (IAPC) of the International Federation of Accountants (2007), The audit of international Commercial Banks  The Institute of internal Auditor (2004), the Role of Internal Auditing in Enterprise – wide Risk Management  Institute Internal Auditors (2001), Standards for Professional Pratices of internal Auditing  No.37/2006/QD-NHNN, Decision of the governor of the State bank of Vietnam on the issuance of the Regulation on internal audit of credit institutions  Decision No 832/TC-QD-CDKT dated 28 October 1997 of the Minister of Finance Investigation Questions Internal credit audit in PG Bank Name: Place of work: Position: 1.When is your internal audit department established? 2.How many staffs in your internal audit department? How many experience staffs (more than year) in banking finance? How many staffs with major in accounting, auditing, credit? 3.Internal credit audit organizational model in PG Bank focus on centralized at head office or disperse to each branch  At Head Office  Disperse to each branch 4.When determine the audit object, you follow the method of “risk oriented”? c.Yes d.No 5.Do you set up yearly credit audit plan ? a.Yes b.No 6.Do you set up detail credit audit plan? a.Yes b.No 7.Is internal credit control conducting regularly at PG Bank? a Regularly b Irregularly 8.Does PG Bank made up annual report? a Yes b No 9.Has the bank strictly applied the principles of auditing? a Yes b No 10.Which of the following factors you use when determine risk in credit activity? a.Summarize risks in the previous year b.Environmental assessment, internal control c.Performance evaluation d.Regulations e.Evaluation of the economy and operating environment of the banking sector f.All of above 11.Has PG Bank done the audit assignment? a.Yes b.No 12.Which of the following step include in internal credit audit process?  Audit preparation  Audit implementation c.Audit report d.Follow after audit e.All of above 13.The annual audit planning of PG Bank based on what criteria?  Risks can be happened  Bank network  Personnel of internal audit department  Expected time  Board of Director’s requirements  All of above 14.Does Board of Directors use operating result of annual audit?  Yes  No 15.Has internal credit audit at PG Bank been advised by external experts?  Yes  No 16.What are the main activities in PG Bank? a.Checking, finding errors and suggestions b.Objective assessment c.Suggestions d.All of above 17 Does PG Bank focus on professional training for internal auditors? a Yes b No 18.In your opinion, what is the meaning of internal credit audit in bank? a.Internal governance of the Board b.Macro management of State c.Ensure the reliability of the information on the financial statements for financial investors and other parties related to the Bank d.Other opinions 19.The selection of internal audit staff of PG Bank based on which criteria? a.Experience in banking finance b.Qualifications (diploma, graduate, post graduate) c.Knowledge of internal audit at bank d.Good communication, group work e.All of above 20.In your opinion, which of the following factors affect the success (failure) of internal credit audit in PG Bank?  The location of the internal audit department in the bank b Internal audit approach c Internal audit content d Qualification of internal auditor e Conscious of Board of Directors, staffs and related parties at bank f.All of above 21 Does your bank learn any experience after auditing? a Yes b No 22.What you think internal auditor’s role in baking system? a Very important b Important c Unimportant d Other opinion 23.Follow-up audit has been thoroughly applied in PG Bank?  Yes  No 24.What is the strongest and weakness of internal credit audit activity in PG Bank? ……………………………………………………………………………………… …… .…………………………………………………………………………… ... a discipline quite apart from public accounting The definition of internal auditing began to evolve In Latin ‘auditor’ literally means ‘listener’ Nowadays, not that much has changed in the essential... Consider the division of the Board of Directors, Sales, Support Credit and other departments involved in the process of credit in the branch (in writing) on the credit has not used reasonable?... are ties related to each other (groups of related clients.) • Check the percentage of equity involved, the determination of debt maturity (III) While lending: • Check the contents of the terms
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