Improving the internal control system in Vietnam National Chemical Group

1 INTRODUCTION 1. Urgency of thesis’s topic In 2009, the Vietnam National Chemical Group was established on the basis of restructuring Vietnam National Chemical Corporation. Due to the group’s large business scale and multi- industry operation, a strong internal control system in support of management activities is indispensable to ensure the group’s objectives, such as: protection of assets, assurance of information reliability, application of regulations and operation effectiveness. However, the group’s formation was not based on capital accumulation and gradual scale development like other groups in the world. Due to this, there were many shortcomings, such as: reliance in subsidies, monopoly, low business efficiency in comparison to its advantages and state investment, ineffective outward investment. Ownership role and state management function were not separated. Capital accumulation, concentration and control were still limited. A number of key management positions were appointed for political reasons, not basing on business management abilities. The information system had many shortcomings which affected its effectiveness for decision-making process. Very few units in the group had their appropriate own policies and procedures for internal control. In addition, one of seven main contents according to the group’s restructuring guideline issued by the Prime Minister for the period from 2012 to 2015 was enhancing the group’s internal control activities. Due to these reasons, improvement of the internal control system in Vietnam National Chemical Group has become an urgent matter in management, which carries both theoretical and reality meanings in the current 2 period. In realizing the importance of this matter, the author has chosen the following topic for the Dotoral thesis "Improving the internal control system in Vietnam National Chemical Group". 2. Overview of researches about the internal control system Up to now, there have been many scientific researches about internal control system in different aspects and fields: + Rationales about internal control systems in Vietnam and in the world have focused on clarifying concepts about internal control systems in companies, criteria and tools for assessing internal control systems and elements of the internal control systems + In Vietnam, researches on the application of the internal control systems in a specific unit in different industries and fields have also attracted interest of many authors in their doctoral theses: in banking credit activities or medium companies. + Recently, there have been a number of researches for doctoral theses about the internal control system whose research scopes are not limited to a particular enterprise but widened to an industry, an economic group and the Ministry of Defence + Organization of business activities under the economic group model is still a new issue, which proves to have many shortcomings during the 10-year process. However, no research about internal control at national groups as well as building it into system is available. There has also been no reasearch about "Improving the internal control system in Vietnam National Chemical Group". 3. The thesis’s objectives and research questions: This research aims to develop theories about internal control systems in economic groups then assesses the system’s current situation in Vietnam National Chemical Group and proposing orientations, solutions for improving it in line with the group’s operations 3 Research questions: In achieving the above research objectives, research questions were given accordingly (see research framework) 4. The objective’s objectives and research scope This thesis focuses on researching the internal control system in Vietnam National Chemical Group (both the parent company and its subsidiaries) 5. The thesis’s research methodologies - Methodologies of dialectical/historical materialism under Marxism-Leninism are applied for sociological researches. The thesis applies methods of generalization, statistics, analysis of basic principles about internal control systems in textbooks and documents. - Survey, observation, interview methods: The author designs the questionnaire for survey and carries out intensive interviews. - Data processing method: from results of survey, observation and interviews , the author designs 14 charts for description, evaluation, statistics and comparison. - Data sources: The author used primary and secondary data. 6. New contributions of the thesis - About theoretical aspect: building internal control model as the theoretical framework for researching the internal control system at Vietnam National Chemical Group. It brings up characteristics of organizational activities and capital define the design and operation of the group’s internal control system. From the reality of organizing internal control systems in economic groups in the world (such as the U.S, China, Japan, Korea), the thesis draws some lessons for Vietnam. - About reality aspect: basing on reality survey, analysis and assessment, the thesis proposes a group of solutions for improving the internal control system in Vetnam National Chemical Group. 4 7. The topic’s research framework and structure Chart 1.1. The topic’s research framework Answering the first research question: Characterisics of economic groups concerning internal control system’s design and operation? Elements of internal control system in economic groups? International experience about internal control system in economic groups in some countries, thus drawing lessons for Vietnam Answering the second research question: Reality of internal control system’s design and operation in Vietnam National Chemical Group? Chapter 3 Orientations and solution for improving the internal control system in Vietnam National Chemical Group Answering the third research question: What group of solutions needed to improve the internal control system in Vietnam National Chemical Group in accordance with its objectives Chapter 2 Reality of the internal control system in Vietnam National Chemical Group Chapter 1 General theory about internal control system and internal control system in economic groups 5 CHAPTER 1: GENERAL THEORY ABOUT INTERNAL CONTROL SYSTEM AND INTERNAL CONTROL SYSTEM IN ECONOMIC GROUPS 1.1 Overview of control and internal control in management.. 1.1.1 Control in management Control is closely related to the management and it plays an important role in manager’s decision making. It is one of the five functions of management including: Goal setting and planning, operation organizing, coordinating and control. Through control, the managers recognize the shortcomings in the organizational system to propose timely corrective measures. Through control, the managers get sufficient information to make appropriate decisions in order to adapt to the environment and achieve their objectives.. 1.1.2 Classification of control By object of control: for prevention, detection and regulation. By scope of control: internal and external controls. By content of control: organizational and accounting controls. By management subject of control: direct and indirect controls. 1.1.3 Internal control The internal control structure of COSO (The Committee of Sponsoring Organizations) can be generalized by the following diagram "Internal control is a process governed by managers, board of directors and the unit’s staff. It is established to provide a reasonable assurance to achieve the following objectives: Reliability of financial report; compliance with laws and regulations; efficiency of operations [111 , p. 186] 6 Chart 1.3: Structure of internal control according to COSO 1.2 Internal control systems in company 1.2.1 The nature of internal control system The International Federation of Accountants ( IFAC ) has offered this definition: "The internal control system is a system of policies and processes designed to achieve four objectives: protection of assets, assurance of information’s reliability, compliance of laws and regulations and efficiency of operation[ 72.82 ]. This definition mentions relatively all aspects of internal control system and emphasizes the objectives of ensuring the operation’s efficiency in compliance with the law and regulation, reliability of information and assets’s safety. This concept also coincides with the viewpoint of Alvin A.rens. Having high generalization characteristics, it can be used for internal control system’s researches in various fields. It is similar in nature with the word “system” in Vietnamese, which means a whole entity of ideologies, principles, rules coherently linked together. Thereby it is applied by the author in studying the internal control system in Vietnam National Chemical Group I.C Reliability of financial reports Compliance of laws and regulations Efficiency of operations Control environment Risk assessment Control activities Information and communication Monitoring 7 1.2.2 Elements of Internal Control System With the approach that the internal control system is a unified entity of the elements of the same type and function closely linked together, the author chooses the IFAC’s viewpoint as a basis to determine elements in the internal control system in economic groups in general and Vietnam National Chemical Group in particular as follows: control environment, information systems (accounting system) and control procedures. Organizational model of internal control system is outlined in the chart below Chart 1.4: Organizational model of internal control system 1.3 Internal control system in economic groups 1.3.1 Overview of economic groups 1.3.1.1 Concept and roles of economic groups From different concepts, author comes up with a concept of an economic group as below: An economic group is an entity of IC System Control environment - Management Specification - Organizational Structure - HR Policies - Planning activities - Control Committee - Internal Audit Division - External Control Environment Information System - Document system - Account system - Booking system - Reporting system Control Procedure - Principle of work and responsibility assignment - Non-concurrent principle - Principle of authorization and ratification Protection of assets Assurance of reliability of the information Assurance of compliance with laws and regulations Assurance of efficiency of operation Control Policies Control procedures 8 economic subjects including the parent company and its units/ member companies with legal entity status that share an ownership relationship or a long-term relation in terms of economic benefits, technology, markets, other services and operations strategy in different areas in order to enhance accumulation, concentration, increase competitiveness and to maximize benefits. The role of economic groups is very important: Groups allows mobilization of material resources , labor and capital in society; linkage to protect the domestic production; expansion in the global market; overcoming of capital limitations for individual companies; promotion of research, development and application of new science and technology, widespread exchange of information and experience and improvement of economical efficiency .. 1.3.1.2. Classification of economic groups: By the method of formation: horizontal affiliation, vertical affiliation, mixed affiliation. By ownership: private group, public group, multi-possession group. By the nature of the affiliation: “hard” and “soft” affiliation. By the specialization characteristics: group with few business fields, multi-industry group. By the business scope: domestic group, transnational Group 1.3.2 Characteristics of economic groups influencing the design and operation of internal control system in a group 1.3.2.1 Group organizational and operational characteristics regarding the design and operation of internal control system - In terms of legal status, an economic group has no legal entity status it is only a combination of companies with legal entity status. - The organizational structure of groups is very diverse with no model pattern. But groups share some common features in management structure: according to the multi- block model in which a company holds a key role. - In term of the business scale and scope: most groups operate in a very large scale and wide range - In term of affiliation and capital management: the main links in a group is through capital investment relations - In term of business sector: the groups carry out diversified and multi-sector operation to diversify risks - In term of ownership: multi-mode of ownership, parent company and subsidiaries 9 1.3.2.2 Characteristics of capital in an economic group regarding the design and operation of internal control system - Diversity of capital ownership in group - Distinction in ownership and operation of capital to a certain extent. - Transparency in adjustment of capital structure - Subject to regulation of the financial management mechanism - High-risk characteristic of capital in the group 1.3.3 Distinction between internal control systems in a group and an individual company - Distinction between a group and an individual company - Distinction between internal control system in a group and in an individual company 1.4 Experience of the internal control systems in some international economic groups 1.4.1 Overview of the internal control systems in some international economic groups In the U.S: the organizational structure of groups is as follows: the parent company establishes a Board of Directors, the Board - on behalf of the company- has the right to decide all matters related to identifying and implementing goals, tasks and rights of the company. The Board of Directors includes internal members and independent members. The Board usually forms several committees in which the members of the Board are in charge of, including: finance, human resource and audit committees. The control of groups in the United States focuses on three aspects: cost, capital and debt In China: the group and parent company carry out both capital management and direct production and trading functions. The parent company directly assigns representatives to the management bodies of respective subsidiaries with governing and coordinating power. Internal audit is an important element in the group’s financial supervision system. However, to boost the efficiency, it is necessary to clearly define the relationship and responsibilities of this unit with the Board of Supervisors.. In Japan: organizational structure in the groups, parent companies and subsidiaries share quite close links in exchange of informations, strategies, business plans through the Board of Directors. The human resource policies in groups apply the management mode for « lifetime recruitment» which encourages everyone in the groups to do their best for survival and for development of the groups.. 10 In Korea, the Chairman’s responsibilities are equivalent to these of the Board members. In each group, there is a corporate office directed by the President with the function of strategy planning and development, coordination of joint activities. This, however, is not an independent legal entity. In the internal control system, the audit committee reports to the Board and owners about the operations of subsidiaries. The “pyramid-style” human resource policies always push all members to strive for high results in their position. 1.4.2 Some lessons for the internal control systems in Vietnamese economic groups An audit committee is necessary for the control environment. A unit of internal audit is required under the Board of Supervisors at all levels of the group to provide early warnings of risks, financial monitoring and assessment of effectiveness and efficiency of the internal control system.The State-owned groups (public groups) need a clear distinction between the function of business management and public administration, between objectives of business efficiency and state management for economic regulation. The parent company assigns representatives to its member companies. For human resource policies, the management mode for « lifetime recruitment» in Japan should be applied flexibly in combination with the pyramid –style policies in Korean to push all members to strive for high work results Conclusion for chapter 1 In chapter 1, thesis clarifies the following contents: - Specialization to clarify basic theoretical issues about internal control systems in companies Analysis of different opinions about internal control system, thereby offering a organizational model of internal control system as the theoretical framework for studying the internal control system in Vietnam National Chemical Group - Analysis of the group’s organizational and operational characteristics influencing the design and operation of the internal control system. Distinctions between internal control system in groups and individual companies are presented to offer a deeper view on the design and operation of internal control system in groups. - Study of experience in organizing internal control systems in some economic groups in the world (such as the U.S, China, Korea) to draw some lessons for Vietnamese groups. 11 CHAPTER 2: REALITY OF THE INTERNAL CONTROL SYSTEM IN VIETNAM NATIONAL CHEMICAL GROUP 2.1 Chacteristics of Vietnam National Chemical Group regarding the selection of research object 2.1.1 The establishment and development of Vietnam National Chemical Group The Vietnam National Chemical Corporation was established following Regulation No. 835/TTg dated Dec 20, 1995 of the Prime Minister on the basic of merging two corporations: Fertilizers and Basic Chemicals Corporation and Industrial and Consumer Chemicals Corporation. In 2006, Vietnam National Chemical Corporation changed its operation model into the form of parent company- subsidiaries. In 2009, the Prime Minister approved the pilot scheme on the establishment of Vietnam Industrial Chemical Group and the decision on the establishment of Vietnam National Chemical Group as the parent company. In 2010, the parent company - Vietnam National Chemical Group - was changed into a Limited Company owned by the State according to a decision by the Prime Minister. 2.1.2 Characteristics of the Vietnam National Chemical Group affecting the internal control system 2.1.2.1 Operational characteristics of Vietnam National Chemical Group - About the group’s establishment method: based on re- arrangement, restructuring of Vietnam National Chemical Corporation - About legal status, Vietnam National Chemical Group does not have legal entity status; only the parent company and its subsidiaries have such status - About simple organization structure: the parent company is the level-1 company; its subsidiaries are level-2 companies - About affiliation and ownership: subsidiaries and affiliates in the group exit under the three following forms: limited company, joint stock company whose over 50% of charter capital owned by its parent company and joint stock company whose under 50% of charter capital owned by its parent company. - About scale, the group enjoys scale advantage in terms of capital, assets, human resources and number of subsidiaries. - About varied business scopes and fields: the groups operates in 4 main sectors and two other sectors related into main sectors 12 2.1.2.2 Capital characteristics of Vietnam National Chemical Group Capital is monitored by representatives and adjusted according to different period. Capital is mobilized in many ways: issuance of bond, treasury bill, promissory notes; borrowing from financial institutions, other financial organizations and individuals outside the group. Outward investment must conform to legal regulations in accordance with the parent company’s strategy and planning 2.1.3 Selection of surveyed companies under the group * Survey subjects: The parent company and member companies of the group (30/47 companies accounting for 63,8%) as representatives concerning the degree of capital ownership and trading sector, [Annex 13] *Design of questionnaires: At the parent company: 112 questions [Annex 20]. At the member companies: 128 questions [Annex 12] *Survey objectives, to collect information about the group’s internal control system *Survey methods: Questions in the survey form include both open and closed types, coupled with interviews and observation to evaluate the existing level of internal control system 2.2 Design and operational reality of the internal control system in Vietnam National Chemical Group 2.2.1 Control environment’s reality in Vietnam National Chemical Group - About management: internal control is highly appreciated in the parent company. Though having capital trading function, management bodies have not undergone appropriate risk research and evaluation processes. - Organizational structures in parent and member companies are suitable. However, a number of units in member companies still carry out concurrent functions and there is no corresponding job description for each position. - Human resource policies are established in parent and member companies. But there is a lack of connection between training instittues and companies in the group’s human resource plan. - Companies take the initiative and pay attention to planning activities. However, the parent company’s co-ordination of planning among member companies is unsatisfactory. Instead of being active in plan buildings, member companies base their plans on previous 13 term’s planning. The majority of staff has not undergone planning training, thus resulting in loose connections between plans. Most companies do not carry out risk assessment in the planning process. - Control mechanism is organized; the control committees in parent and member companies were restructured. However, operation of control committees is not effective. Specific rules on reward and penalty are unavailable. - Internal control systems are not built in parent and member companies - Many shortcomings exist for external elements of legal documents: capital building for state economic groups are limited; state capabilities in management and supervision are outpaced by reforms in financial mechanisms for state companies and state economic groups. 2.2.2 Reality of information system in Vietnam National Chemical Group 2.2.2.1 Information system of companies Information is mainly exchanged via documents, phones and network. However, the information system does not assist management bodies in identifying and coping with risks as well well maximizing business opportunities. No appropriate mechanism is in place for outside information collection. 2.2.2.2 Accounting information system Attention is given to the parent and member companies’ accounting information systems, which meet the management requirements. At member companies, however, the formation of document rotation process is not specified by documents; delegation on document signing is unclear. Concerning the account system; a number of companies do not use their accounts appropriately; accounts do not provide assistance for preparing company’s management report. There is a lack of attention regarding the record and report system 2.2.3 Reality of control procedures in Vietnam National Chemical Group 2.3.3.1 Principle control procedures in Vietnam National Chemical Group Control procedures are established but focus is only given on regular activities, not abnormal ones. Objective control procedures are not applied such as suggestion box. No method available for 14 enhancing staff’s sense of self-criticism. No specific regulation in documents about authorization of document signing is in place in the majority of companies. 2.2.3.1 Reality of applying basic control principles in design and peration of control procedures in Vietnam National Chemical Group - Principles of work and responsibility assignment: carried out between the Board of Directors, Member Council and Board of Management in the parent and member companies (one-member limited and joint stock companies). They are implemented properly between departments and for subordinate units - Non-concurrent principle: most companies in the group do not clearly regulate non-concurent works. - Principles of authorization and ratification: carried out at the parents and member companies as well as subordinate units. Authorized individuals must implement work approval and must be held responsible for what they approved. 2.3.3.3 Reality of controlling principle activities in Vietnam National Chemical Group At the parent company: Concerning capital control, financial regulations are established in most companies. However, there is no appropriate regulation on capital control in the group. Concerning control of representatives, control regulations are in place but many shortcomings exist: many rights are assigned without an effective control mechanism; remuneration is not reasonable; concurrent positions exit; there is no frequent information exchange between representatives and the parent company. At member companies: - Purchasing control: criteria and procedures for evaluating and selecting suppliers are not regulated by written documents; selection is still based on relations, thus sometimes resulting in many risks in purchasing process. - Sales and payment collection control: most one-member limited companies do not have sales promotion policies, unlike joint stock companies with better, more effective and flexible sale policies. Control procedures from placing order, putting goods out, making invoice, delivery and payment are cumbersome with many stages; therefore application is still slow. Co-ordination is missing between different units in carrying out their work. 15 - Inventory control: surveyed companies have not established inventory procedures by documents, which makes it hard for assigning works and checking inventory properly. A number of companies do not review the current status of their materials and inventories for categorizing unsold goods/materials with poor quality and having appropriate solutions. - Fixed assets control: companies have yet paid attention to assets numbering or coding, which creates difficulties for asset control and classification. In addition, companies in have not planned on building and maintaining a system of daily and unusual reports about usage and current status of fixed assets. Control of discharge into the environment: the task of environment control in the group is carried out well. However a few companies still do not pay attention to controlling environmental waste. They had to pay fines to the government for environmental pollution. When pollution occurred, timely recovery measures were not carried out, resulting in serious consequences. 2.3 Assessment of the reality of internal control system in Vienam National Chemical Group. 2.3.1 Strong points of the internal control system in Vietnam National Chemical Group. - Control environment: companies in the groups have favourable internal control environments to maintain and organize the internal control systems with a view to bringing into plays its effectiveness in management activities. Leaders at parent and member companies demonstrate regular concerns, direction, and willingness to think, do and approach new knowledge in management in general and in control of activities in particular. - Accounting information system: accounting activities are carried out quite in sync with business characteristics in each filed of operation. - Control procedures: companies have carried out activities and operations with complementary effects in order to create a continuous internal control system. 2.3.2 Some shortcomings of the internal control system in Vietnam National Chemical Group. - Control environment: Reagrding management, awareness about control of a number of leaders in member companies is still 16 incomplete. Regarding organizational structure, concurrent and overlapping situations in functions, responsibilities still exist. Appointment of responsibilities is not regulated by specific documents. Regarding human resource policies, they have not displayed effectiveness. There are no policies to encourage employees’ devotion to their companies. Regarding planning, initiative has not been taken in assessing the reality for planning. Planning procedures are not constructed properly. The quality of planning activities is not good with the lack of synchronization. Regarding internal audit, such important system has yet been built by companies in the groups.Regarding control system, its role and responsibilities have not been brought into play and no proper training is available. Regarding control from the outside, control mechanism do not focus on control of the implementation of state ownership. There is a lack of consistency, synchronization about the state’s management role with focus on trivial and separate matter only. - Information system: communication of information in the group’s companies are not smooth or even slow at times. There are also many shortcomings in accounting information system. - Control procedures: incomplete control procedures and violations in designs of procedures are still in place. Regarding control of some basic activities: In the parent company, control of representatives proves to be not effective and does not bring its assigned responsibilities and role into full play. Regarding capital control: no suitable regulations about capital control in the group is available; the groups’s financial capability is weak. In member companies: Purchasing control: there are no effective control policies and procedures for suppliers; Sales and collection control, control of liabilities and markets is not effective enough; Investory control: inventory procedures have not been designed; no policy in handling unsold goods is available; Fixed asset control: review and evaluation of fixed asset usage have not received the group’s proper attention. - Risk assessment system: The group has yet carried out risk assessment and analysis - In recent times, a number of companies in the groups displayed inefficient business operation despite enjoying the government’s incentives and resources. Their management capability, effectiveness 17 and efficiency are still limited. The government’s mechanism and policies have not kept pace with reality. Outward investment is still carried out. Internal competition is still present within the group. 2.3.3 Reason for shortcomings of the internal control system in Vietnam National Chemical Group. Objective reasons: The group’s establishment and development are based on administrative decisions rather than capital accumulation and concentration. No focal unit in charge of ownership and state management is available. Many mechanisms and policies do not distinguish between business role and public duties, resulting in low business efficiency and effectiveness. This is because the group is given the role of ensuring social securities, battling inflation and economic downturn. Subjective reasons: The group’s management and operation activities are weak with a lack of transparency. No appropriate attention is given on business capability in the personnel mechanism. There is a lack of focus on recruting and training staff. Responsibilities about management results are not associated with the management bodies.There are no assessment activities on the effectiveness of internal control. Passive reviews of documents and regulation is still prevailing. Knowledge about internal control system of management bodies is limited without proper training. Conclusion for chapter 2 In chapter 2, the thesis presents the following contents: It summarizes the establishment and development of Vietnam National Chemical Group. The author analyzes characteristics of business operation and capital in the group to clarify its impact on the design and application of internal control system. Basing on the survey of 30 companies in Vietnam National Chemical Group, the thesis analyzes representative models to display the reality of internal control system in the group. It provides assessment of the existing level and effectiveness of the internal control system’s elements in the group.On the other hand, the thesis also presents deep analysis of basic activities in the parent and member companies. From that, the author assesses strong points and shortcoming of the internal control system. Such assessment serves as the basic for proposing solutions to improve the internal control system (as specified in Chapter 3) 18 CHAPTER 3: DIRECTIONS AND SOLUTIONS TO IMPROVE INTERNAL CONTROL SYSTEM IN VIETNAM NATIONAL CHEMICAL GROUP 3.1 The necessities and directions for completing the internal control system in Vietnam National Chemical Group 3.1.1 The advantages and disadvantages during the establishment and development of Vietnam National Chemical Group Advantages: The business result and orientation for development of the group has received approval from the Prime Minister; the arrangement and legal bases for operations of companies within the group are mostly sufficient. Disadvantages: Regulations by the law regarding operations of the company are scattered and have not been sufficiently organized, leading to limitation in their effectiveness. Several products have not received attention. Regarding business capital and product characters, producing and selling fertilizers require a large amount of investment capital and current capital while having slow capital turnover with low investment effectiveness; the fertilizer market is seasonal and relied on farmers’ earnings. Rubber and chemical products are in high and unequal competition with imported products due to imitation goods, fake goods and trade fraud. The government’s policies caused high rise in inflation and interest rate. Regarding trade fraud problem, the production and sales of fake goods, low-quality goods, goods with trade fraud seem to be increasing in number as well as sophistication. 3.1.2 Challenges for management and the need to complete the internal control system of Vietnam National Chemical Group The legal base defining the internal control system within companies in one group has not been systemized into legal documents. Financial activities have been lacking integration and in small scale; there are many documents with overlapping or contradicting contents. The information system has not been used sufficiently and timely in assisting management decision making. Control procedure is 19 insufficient and only concentrating on previously seen activities while missing the irregular activities; thus lacking the initiative. In regulation No. 2097/QD-TTg approving the scheme of Restructuring Vietnam Chemical Organization period 2012-2015, one of the seven important objectives is to increase internal control. 3.1.3 Directions for completing the internal control system in Vietnam National Chemical Group Completing the internal control system must ensure the effectiveness and practicalness; the complete element parts; the harmonious solution for all relations, avoiding overlapping while ensuring the feasibility and economical aspect of the system. It must aim at the group’s wholly restructuring; respect the characteristics of the group; ensure the State executing its ownership rights within the laws, not to interfere deeply and directly into the operation of the group. It must be compatible with the requirements and the professional skill level as well as the available equipment. 3.2 Solutions to improve the internal control system in Vietnam National Chemical Group 3.2.1 Solutions for control environment Regarding management characteristics of parent and member companies: Raising management’s awareness and views regarding the internal control system; recognition and assessment of risks; business management in the coming time for better execution in group’s restructuring; the importance of assessing internal control system’s effectiveness, business culture building within the company. Regarding the organization: Requiring the study and creation of “Table of Prescription of Responsibility” for each position in the group. Responsibility need to be delegated between the head and deputy level to avoid too much workload. Regarding the human resource policy: Restructuring the human resource policy in units of the parent company; putting priority in 20 recruiting capable candidate with abilities and levels matched the specialization of each department. Developing a top professional team with high profile personnel, especially those in management and technology. Regarding the planning activity: the planning activity for the parent company needs to fulfill two roles: blending and combining the plans from each member company. Procedures for planning and monitoring the execution of plans need to be built. The Planning Division in the parent company and planning departments in member companies need additional functions in recognizing, analyzing, assessing and monitoring risks. Regarding the monitor mechanism in the parent and member companies: the efficiency of the control committee needs to be improved. 3.2.2 Solutions for improving the information system Regarding the improvement of information system at parent and member companies: Building an internal network system to easily receive and send out information. Researching on the ERP management application software. Regarding the improvement of accounting information system at member companies: Raising the managers’ awareness about the importance of accounting activities. Regulations, forms, and application area for receipts should be issued in official documents. Regarding the accounting ledgers: Some companies using the journal voucher model should change to the general journal model. Regarding the accounting report system: Research and build an integrated management report system. A model for accounting management operation should be built along with the financial accounting system. 21 3.2.3 Solutions for improving control procedures Principles for assignment of duties, non-concurrent position, delegation and approval in the design and operation of control procedures should be applied fully and adequately. The control procedures for principle activities in member companies need to be improved, including purchasing, selling and cash receipt control, stock control, fixed assets control. 3.2.4 Improvement of management mechanism for representative from the parent company A thorough management mechanism needs to be applied to select representative with adequate ability and ethic. For companies with less than 50% capital owned by the group, representatives must be people from the company with important positions such as head of accounting, vice manager, head of department or head of control committee. Redistribution of representatives’ income needs to be done. Work needs to be assigned to the right person with right specialization. Specific and regular period reporting is designed. Additional criteria for selecting representatives are required. Rotation and responsibility auditing of representatives must be done. Deadline for issuance of guidelines from the Board of Directors is added. 3.2.5 Improvement of capital control in Vietnam National Chemical Group Further consolidation and development of foundation for the monitor and control mechanism. Enhancing operation management capability for management officers in the group. Maintaining an appropriate capital structure. Ensuring financial transparency and timely, sufficient and accurate provision of information. Building financial plans to execute main assigned missions and tackle financial issues during the restructure process. 3.2.6 A number of solutions for improving internal control in accordance with the group’s restructure guidelines until 2015 Controlling investment in major business fields; avoiding focus in outward investment. Controlling investment in new products 22 carrying the group’s characteristics. Controlling the planning of market development. Controlling re-organization and reform of the enterprise, initiating the equitisation process. Controlling the research, application and investment of new technology meeting the environmental standards. Controlling the restructure of member companies, intiating the cooperative assignment with no internal competition. Controlling the development of high quality personnel for the group. 3.3 Proposals to execute solutions for improving the internal control system in Vietnam National Chemical Group 3.3.1 To the State The State needs to continue improving the legal policy system regarding the management and usage of state properties at economic group. A research on establishing a general department for controlling and monitoring corporate finance under the Ministry of Finance’s management should be done in order to manage and monitor the group’s operation. A more thorough distinction between State management functions and executing owner’s right function; separation between owner’s rights and proactive business operation rights should be carried out. The information disclosure mechanism on state economic groups is implemented. A control mechanism needs to be built with enough authority and objective, transparent goals and evaluation criteria. 3.3.2 To the authority bodies An internal auditing association should be established to carry out research and issue a standardized system for internal audit. Training and researching facilities need to increase the teaching and fostering of knowledge about internal audit system to assist companies and managers. 3.3.3 To the Vietnam National Chemical Group The group needs a clear understanding about elements of the internal control system in order to sufficiently and appropriately design 23 policies and executes procedures. The parent company needs to be the connecting bridge in holding seminars, discussion, meetings for member companies to exchange experiences about the internal control system. The parent company needs to guide member companies in reaching a final agreement in appropriately improving the internal control system; modifying, adjusting and improving the internal management regulatory system. Research needs to be carried out on establishing a specialized division with the focus on development of chemical industry, fertilizers, plant protection chemicals and the field of pharmaceutical chemistry. A representative management model compatible with the group’s operation model needs to be implemented. Conclusion for chapter 3 This chapter presents the following points: Improving elements of the internal control system and the management mechanism of representatives. Appropriate and efficient control method needs to be applied to secure and develop State capital. The thesis proposes several solutions for improving internal control in accordance with the group’s restructure guidelines until 2015 to decision from the Prime Minister. In order for these solutions to be applied, the thesis also presents a few proposals to the State, the authority bodies and the Vietnam National Chemical Group to create favorable environment for establishing and completing the internal control system. 24 CONCLUSION In analyzing different viewpoints about the internal control system, the thesis has generalized and proposed a model system as the theoretical framework for research in Vietnam National Chemical Group. It provides analysis of the group’s operational and capital characteristics influencing the design and operation of its internal control system. Researches on experiences in operating such system at large groups in the world such as the United States, China, Japan and Korea have resulted in some lessons for Vietnam. The thesis states the advantages and disadvantages of economic environment. Through survey, selection of survey subjects and deep analysis, the author brings out the reality of the group’s internal control system. Then, the follow-up analysis and assessment help draw strong points and shortcomings that require correction to ensure the system’s objectives. Also, the necessity and orientation needed for improving the group’s internal control system are stated. To ensure the accuracy and feasibility of proposed contents, the thesis has discovered the reasons for existing issues of the internal control system in Vietnam National Chemical Group basing on theoretical research along with international experiences in designing and operating the internal control system at international groups. The author has presented detailed contents for improving the internal control system by each element, capital investment and control, management mechanism for representatives of the group’s capital investment in other companies and a number of solutions for improving internal control in accordance with the group’s restructure guidelines until 2015. Its also states a few proposals to the State, the authority bodies and Vietnam National Chemical Group to create premises and foundation for applying said contents into practice Sincerely Thank You!.