Risk Management and Internal Supervision Should be Promoted

Despite ranking third in the Vietnamese non-life insurance market, the Petrolimex Joint-Stock Insurance Company (PJICO) accounted for 13 per cent of the local market’s share in 2005. PJICO’s business scope consists of non-life insurance, re-insurance, financial investment, and other services, including expertise, investigation and compensation settlement. With this business scope, PJICO has had up to 50 branches nationwide with over 1,000 staff members and over 4,500 agents.

In 2005, PJICO’s general director and deputy general director took bribe of VND 1.9 billion to approve a payment of VND 3.8 billion in compensation for the Viet Thai Phong Company. The company’s leaders put off few days to help the Viet Thai Phong Company use counterfeit bills and misrepresent value of goods. When the case was brought to light, the general director and deputy general director was accused by the Hanoi People’s Court for corruption.

 

PJICO is an example for poor internal supervision and risk management of enterprises. The Nghe An and Ha Tay Post Offices are other examples. The two agencies’ directors colluded with a supplier to print yellow pages at higher prices to take commissions of over VND 3 billion. The investigation results of police show that the directors violated intentionally the State’s regulations and abused their power to in their own interests.

 

It is possible to see that the two cases have a similar feature with poor internal supervision and poor behaviour code. According to statistics by IFC/MPDF, up to 58 per cent of Vietnamese companies are suffering from poor administration. How will the Vietnamese companies improve the effectiveness in their risk management and internal supervision?

 

At first, it is necessary to identify risk management as a process implemented by the executive board, the directorial board and staff members of enterprises during developing enterprises’ strategies. Risk management is implemented to identify potential incidents which may impact on enterprises’ operation. The activity is aimed to help enterprises achieve their targets. Meanwhile, internal supervision is a process implemented by the executive board, the directorial board and all staff members of enterprises. The activity is designed to ensure that enterprises will achieve their targets. Effectiveness and efficiency of enterprises’ operation and reliability of financial reports and the observation of the law and regulations are subject to internal supervision.

 

In fact, most Vietnamese enterprises have accessed risk management and internal supervision but they have not known they are implementing the process and how to implement it. Traphaco, is an example. After seven years’ equitisation with 55 per cent of capital belonging shareholders, Traphaco’s annual growth rate is around 30 per cent. Vu Thi Thuan, chief executive of Traphaco, said that the company had five people in the executive board and three of them were in the supervision board. They supervise production activities of the enterprise but the company has yet to form any concept of risk management and internal supervision and has yet to have any independent session for risk management.

 

Representatives from ODC asked a question about how to prevent outside risks, such as increase of oil and petrol prices. Answering the question, Simon Calvert from PWC Vietnam, took Samsung for example. He said that Samsung had built a reserve centre in the Republic of Korea. If there are outside risks impacting the group’s operation, such as natural disasters or earthquakes, Samsung will use the centre.

 

Some risks, which are hard to manage as some enterprises stated, include ‘backyard’ transaction. Vu Xuan Tien, director of VFAM, said that in some cases directors of enterprises set up companies for his relatives then offer contracts to these companies. Enterprises ask question about the management of unofficial costs. These are real difficult problems for Vietnamese enterprises.