The Road of Practice and Innovation in Evaluating the Effectiveness and Performance of Internal Control

-- Industrial Bank Launched the Pilot for Implementing the Internal Control Standard System

At the end of the 2010, in order to fulfill the requirements of the Circular on Printing and Issuing the Supporting Guidelines for Enterprise Internal Control, the Ministry of Finance launched the project for researching the operating procedures and methods of internal control evaluation. In March 2011, Fujian Provincial Department of Finance, State-owned Asset Supervision and Administration Commission of Fujian Province, and Fujian Provincial Securities Regulatory Commission listed Industrial Bank (IB) as a pilot institution for implementing the Basic Standards for Enterprise Internal Control, further boosting the progress of IB in constructing its internal control compliance system. Combining its overall construction and promotion of compliance management systems and progress in compliance management as well as the experiences as a pilot institution for compliance monitoring at an early stage, in July 2011, the IB

Head Office, after deliberation, decided to choose Hangzhou Branch as a pilot site for carrying out internal control standards work.

The launching of the project will firstly facilitate the connection between the pilot of IB for the project of internal control system and the latest regulatory requirements of the supporting regulations on internal control; secondly, facilitate IB to introduce advanced methods for internal control evaluation so that IB can establish a system for the methods of classifying bank risks with high operability, establish and improve the process and mechanism for the management of internal control compliance, enhance its competence of internal control and compliance management, and promote the sustainable and healthy development of banking;  thirdly, produce a demonstrative effect in the industry through the pilot so as to improve the brand image and overall value of IB.

 

Lasting for over four months, this pilot was completed at the beginning of December. The working contents were mainly divided into two parts: internal evaluation and compliance monitoring. The implementation of the whole project was divided into six stages and five training sessions according to the project progress. In the principle of importance, IB accomplished an evaluation on the effectiveness of important procedures and on key performance indices (KPI) of internal control of the branch, established a database for the branch’s compliance issues, constructed a key performance indices system for compliance risks, and prepared a compliance report by way of centralized training and a combination of on-site and off-site work.

In terms of internal control evaluation, IB carried out evaluations on the effectiveness and performance of procedures. The evaluation on the effectiveness of procedures focuses on the role of internal control to improve corporate management. The evaluation of the performance of procedures focuses on the supporting role of internal control to the fulfillment of corporate strategic objectives and verifies the role of supporting the improvement of corporate performance by way of procedure performance through selecting and evaluating the target index and process index of important procedures. In the aspect of compliance monitoring, IB focuses on basic data centralization and data analysis and utilization, aiming to establish a “risk map” and “inspection map” for the branch and realize effective identification and management of compliance risks.

With this pilot work, firstly, the branch mastered the methods to smoothen procedures and identify and manage risks; secondly, the branch implemented the sustained clearing and improving of regulations and procedures and promoted dynamic updating and maintenance for the systems of regulations and procedures by way of internal control fundamental-documentation work, so as to avoid “violation of regulations”; thirdly, the branch facilitated the mutual promotion of internal control evaluation and compliance monitoring, thus avoiding “information islands”; and fourthly, by way of innovating management methods, the branch improved the management level of internal control compliance and facilitated the realization of strategic objectives.

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