|
Banking faces up to internal audits
A recent survey conducted by Pricewaterhouse Coopers Vietnam highlights improvement areas for internal audit professionals in the Vietnamese banking sector, writes Marius Kunneke, Partner and Nguyen Viet Thinh, senior managers from the firm’s advisory practice.
Internal audit (“IA”) is a new area in Vietnam and the banking sector is the first where IA was recently exclusively regulated.
PwC conducted a survey on internal auditing in the Vietnamese banking sector which was structured to address eight key areas relevant to the IA function, organisation, mandate, skills and knowledge, risk assessment, audit process, audit report, quality control and challenges to implementation.
Almost 30 foreign, joint venture, joint stock and state-owned banks operating in Vietnam participated in the survey over 90 per cent of which have been operating in Vietnam for more than 10 years.
Some 93 per cent of the respondents reported they have set up an internal audit function in their banks. Most IA functions were established in 2007 and 2008 under Decision 37/2006/QD-NHNN issued by the State Bank on August 1, 2006. Of those who have established an IA function, 41 per cent are centralised at their head office while 44 per cent have IA at both the head office and other branches.
The challenges ahead
The lack of clear and long term IA strategies is one of the toughest challenges. Some 41 per cent of all respondents said they have no IA procedures in place and for those who do, their adequacy is often questionable. This may reflect the fact that IA is a new field in Vietnam and there are as yet no official standards and practice guidelines.
Although the State Bank has issued clear guidance on internal controls and inspections in Decision 36/2006/QD/NHNN, dated August 1, 2008, 78 per cent of the survey respondents reported an overlap in roles and responsibilities of the internal audit and inspection functions, particularly in the areas of compliance and the review of internal control systems. It should be noted that most banks had an internal inspection function in place prior to Decision 36.
Stakeholders also view IA and its role in different ways. Many stakeholders see auditors as policemen rather than a consultants or advisors. Some also believe that an internal auditor executes the day to day work of the organisation, which would impair the independence of an audit.
The quality and quantity of IA teams is not up to the expected level.
Given that the responding banks have a wide network of branches, almost 70 per cent of them have fewer than 20 internal auditors. Only one respondent reported having more than 100 internal auditors. We discussed this with a few banks and understand that they are facing difficulties recruiting internal auditors because of the lack of a competitive remuneration packages and/or the unclear career paths for someone working in the field.
Currently, internal auditors spend most of their time (53 per cent) working in the traditional areas of credit and accounting, and only 7-8 per cent of their time in both card and payment centres and treasury. Also, 30 per cent of the banks reported they have not yet implemented an IA system for their information technology.
Among the important skills and knowledge generally unavailable to internal auditors in the Vietnamese banking sector, information technology (IT), analytical, and risk management skills are the most lacking. This situation is not only in Vietnam but also throughout the region. According to another PwC survey on IA needs and goals for 2012, 92 per cent of Asian respondents said that data mining and analysis will be the skills most in demand for auditors in the near future.
IA has low creditability in the eyes of main stakeholders
Some 80 per cent of participating banks believed that under point of view of external auditor internal audit report is just fairly important or no important. This, coupled with the stakeholders’ overall views of IA, indicate that it has not earned creditability, perhaps because of the low number and quality of internal auditors as mentioned earlier.
PwC’s global survey on the state of IA in 2012 also showed that 73 per cent of Asia-Pacific respondents believe that IA should increase its level of interaction with external audits.
Some Vietnamese banks said that internal audit reports sometimes do not prove to be good value. They felt that internal audit recommendations were often not feasible in reality and that the internal auditors sometimes did not have a proper understanding of the business undergoing the audit. Also, IA needs to spend more time on new and complicated areas of the banking business such as the card centre and information technology as reported above.
There are virtually no support tools for internal auditors. Most of the banks reported that they use Microsoft Excel/Word as their only supporting tool. Some 59 per cent perform the audit manually and less than 15 per cent used internal audit support tools such as automated working papers and report writing software.
None of the local banks use continuous auditing software which is gaining popularity worldwide for IA in the banking sector. Lack of support tools does not allow IA to operate efficiently and prevents it from accessing complicated areas such as IT, strategic risk, fraud investigations and continuous auditing. Many banks were unaware of such professional support tools as TeamMate, AutoAudit, Audit Leverage, and ACL. Other issues raised by respondents include:
* Internal auditors’ lack of experience with and knowledge of information technology.
* No proper system to measure IA performance.
* Inadequate risk management system for banking.
* No standardised report templates available.
There are many things that the IA function in the Vietnamese banking sector can do to improve their activities. It is the time now for banks to review the performance and activities of their IA function and move it forward.
We welcome your comments and questions in English as well as in Vietnamese at marius.kunneke@th.pwc.com or nguyen.viet.thinh@vn.pwc.com. To learn more about doing business in Vietnam, please visit www.pwc.com/vn.
VietNamNet/VIR
|
