HUE UNIVERSITY HUE COLLEGE mfsaleKHÓA OF ECONOMICS HỌC: 2018 – 2022 FACULTY OF ACCOUNTING AND FINANCE GRADUATION THESIS IMPROVING THE INTERNAL CONTROL SYSTEM OF THE PURCHASE – PAYMENT CYCLE AT NGOC VIEN DONG TECHNOLOGY JOINT STOCK COMPANY DUONG ANH MINH CLASS OF 2018 – 2022 HUE UNIVERSITY HUE COLLEGE OF ECONOMICS FACULTY OF ACCOUNTING AND FINANCE GRADUATION THESIS IMPROVING THE INTERNAL CONTROL SYSTEM OF THE PURCHASE - PAYMENT CYCLE AT NGOC VIEN DONG TECHNOLOGY JOINT STOCK COMPANY Student: Duong Anh Minh Supervisor: Major: Auditing Master. Đào Nguyên Phi Class: K52 Auditing – High Quality Program HUE, MAY 2022 ABTRACT Internal controls become increasingly critical after the Enron and WorldCom scandals. Furthermore, internal controls are important not just in public organizations but also in private companies since they protect an organization's assets, reduce the chances of fraud, and allow errors to go unnoticed in everyday operations. In this context, purchase-to-pay is the principal process, which is the procedure through which a company purchases the goods and services it needs to run its business constructively.
To conduct the thesis, the author implemented several method to collect the secondary data from relevant employees and accountants and ultilized some test of control methods includes inspection of documents, inquiries about internal controls and observation of controls to evaluate the internal control system of company. From this study, the author hope to build effective risk prevention system as well as suggest more solutions in order to help strengthen and improve the efficiency of internal control activities in purchase and payment cycle at Ngoc Vien Dong Technology Joint Stock Company. Specifically, it investigates and evaluates whether the company lacks control over any stages of the given process. ACKNOWLEDGEMENTS With deep respect and gratitude, first of all, I would like to express my sincere thanks to the teachers of the University of Economics - Hue University, especially the teachers in the Faculty of Accounting and Finance.
You have given me a lot of valuable knowledge over the years, I would like to express my special thanks of gratitude to my instructor Dao Nguyen Phi, who gave me the golden opportunity to do this wonderful project on the topic “Improving the internal control system of the purchase - payment cycle at Ngoc Vien Dong Technology Joint Stock Company”, which also helped me in doing a lot of Research and i came to know about so many new things. Second, I'd like to express my heartfelt gratitude to the uncles and aunts of Hue City Tax Department's Tax Inspection Team No.2 and, in particular, Mr.Nguyen Cong Thien, who directly guided and assisted me, provided support, created favorable conditions, and provided necessary documents during my internship. In addition, I also want to express my gratitude to the aunts, uncles, brothers, and sisters who work at Ngoc Vien Dong Technology Joint Stock Company for their continued support and for providing me with opportunities to learn about actual labor. Finally, despite several attempts, mistakes cannot be avoided owing to a lack of knowledge and capacity, as well as a lack of practical experience.
I look forward to receiving your valuable comments and suggestions to improve my graduation thesis. Thank you! TABLE OF CONTENT ABBREVIATION. i LIST OF TABLES. ii LIST OF FLOWCHARTS.
iii PART I: INTRODUCTION. 3 PART II: RESEARCH CONTENT. 7 CHAPTER 1: THEORETICAL BASIS OF INTERNAL CONTROL SYSTEM OF THE PURCHASE AND PAYMENT CYCLE. Overview of internal control.
The concept of internal control. Objectives and role of Internal control. Objectives of Internal control. Role of Internal Control.
Components of Internal Control. Information and Communication. Internal control of the purchase and payment cycle. Characteristics of the purchase and payment cycle.
Possible risks in the purchase and payment cycle. The purposes of internal control in the purchase and payment cycle. The primary purpose of internal controls. The purposes of internal control in the purchase and payment cycle.24 CHAPTER 2: THE SITUATION OF INTERNAL CONTROL SYSTEM OF THE PURCHASE AND PAYMENT CYCLE AT NGOC VIEN DONG TECHNOLOGY JOINT STOCK COMPANY.
Introduction to Ngoc Vien Dong Technology Joint Stock Company. History of formation and development. Field Operations and Development Orientation. Accounting department organizational structure.
The analysis of the company's resources and business performance over the three years 2018 - 2020. Labor force structure of the company over 3 years from 2018 to 2020. The current situation of purchase-to-pay cycle at Ngoc Vien Dong Technology JSC. The current situation of control environment in the purchase-to-pay cycle.
The entity makes a commitment to ensure integrity and ethical values. Employee capacity and HR policy. Organizational structure and supervision. Segregation of Duties.
The current situation of risk assessment in the purchase-to-pay cycle. The current situation of control activities in the purchase-to-pay cycle. Control activities in purchase-to-pay cycle. Control over source documents.
The current situation of information and communication in the purchase-to-pay cycle 58 2. The current situation of monitoring in the purchase-to-pay cycle. Internal control over each stage of the purchase-to-pay cycle at the company. Internal control over purchase requisition and purchase approval stage.
Supplier selection stage. Internal control over ordering stage. Internal control over the bookkeeping process and keep track of accounts payable stage. Internal control over the payment process.69 CHAPTER 3: SOME SOLUTIONS CONTRIBUTED TO IMPROVEING THE INTERNAL CONTROL SYSTEM OF PURCHASE AND PAYMENT AT NGOC VIEN DONG TECHNOLOGY JOINT STOCK COMPANY.
Evaluation of control environment. Assessment of risk assesment. Evaluation of control activities. Evaluation of the internal control in the purchasing process.
Evaluation of the internal control in the receiving stage. Evaluation of the internal control in the process of bookkeeping and keep track of accounts payable. Evaluation of the internal control in the payment stage. Evaluation of information and communication.
Evaluation of monitoring. Some suggestions to improve the internal control system of the purchase and payment cycle at the company. Some suggestions to improve the the internal control system in general. Some suggestions to improve the internal control system in each stage of the purchase and payment cycle .80 PART III: CONCLUSION AND RECOMMENDATION.
Recommendation and limitations. 84 ABBREVIATION Abbreviation Meaning AP Accounts Payable BODs Board of Directors COSO The Committee of Sponsoring Organizations of the Treadway Commission HOD Head of Department HR Human resources IC Internal Control JSC Joint Stock Company ROA Return on assets ROE Return on equity VAT Value-added tax i LIST OF TABLES Page Table 1.1: COSO Framework's 17 Principles of Effective Internal Control .2: Control environment factors.3: Key Internal Control Activities .4: Possible risks in the purchase and payment cycle .1: Analysis of labor force structure of the company.2: Horizontal analysis of Balance Sheet for Ngoc Vien Dong Technology JSC .3: Horizontal analysis of Income Statement for Ngoc Vien Dong Technology JSC .4: Analysis of liquidity ratios in 3 years 2018 – 2020 .5: Analysis of profitability ratios for the 3 years 2018 - 2020 .6: Analysis of growth rate in 3 years 2018 - 2020.7: Questionnaire to evaluate the control environment element of the internal control system in the purchase-to-pay cycle .8: Questionnaire to evaluate the risk assessment element of the internal control system in the purchase-to-pay cycle .9: Questionnaire to evaluate the control activities element of the internal control system in the purchase-to-pay cycle .10: Questionnaire to evaluate the information and communication element of the internal control system in the purchase-to-pay cycle .11: Questionnaire to evaluate the monitoring element of the internal control system in the purchase-to-pay cycle. Control activities in the purchasing process. Control activities in the receiving stage.
Control activities in the bookkeeping and keep track of accounts payable stage. Control activities in the payment stage. 76 ii LIST OF FIGURES Page Figure 1.1: Five Components of the COSO Framework .2: The purchase and payment cycle.3: Accounting department organizational structure .4: Total revenue and growth rate over 3 years 2018-2020 .5: Purchase requisition form .7: Purchase order form.8: Receipt of delivery form .9: Goods received note form .68 LIST OF FLOWCHARTS Page Flowchart 2.1: Document flowchart in the purchase requisition stage .2: Document flowchart in the ordering stage .3: Document Flowchart in the receiving stage .4: Document flowchart in the bookkeeping process and keep track of accounts payable stage .5: Purchase-to-pay process detailed workflow chart at Ngoc Vien Dong Technology JSC .6: Document flowchart in the purchase-to-pay process at Ngoc Vien Dong Technology JSC .71 iii PART I: INTRODUCTION 1. Rationale In recent years, Vietnam's official membership and accession to world economic organizations such as the World Trade Organization (WTO), the Association of Southeast Asian Nations (FTA), the Asia-Europe Economic Cooperation Forum (ASEM), the Association of Southeast Asian Nations (ASEAN), etc.
have assisted Vietnam form a strong and growing link with other economies, through trade and investment. More than 50% of Vietnam's export value targets markets: the United States, China, the European Union, and the United Kingdom. As a result, in today's competitive environment, Vietnamese enterprises must build a solid company with an effective and efficient internal control system to contribute to preventing and limiting the risk of fraud, detecting errors, and ensuring transparent financial reporting to improve customer confidence while improving the quality of business operations to meet the needs of current customers and expanding opportunities to find many potential customers. In addition, the 3-year COVID-19 outbreak in the period of the end of 2019 and the end of 2021 has brought unprecedented challenges and had an extremely significant impact on Vietnam's economic development, not only affecting the way it operates but also the production and business activities of not only large corporations and enterprises but also small and medium enterprises and business households.
During the global outbreak according to the General Statistics Office of Vietnam, in the first nine months of 2021, the Covid-19 epidemic negatively affected the Vietnamese economy, accordingly, GDP in the third quarter of 2021 had the deepest decrease since the calculation and publication of GDP by a quarter in Vietnam. The Covid-19 pandemic from the beginning of 2020 to now has affected the production capacity, market, and demand of consumers. According to World Bank (2020), there are about 50% of small businesses and more than 40% of medium-sized businesses are temporarily or permanently 1 closed due to the impact of the Covid-19 pandemic. In particular, the number of enterprises registered to suspend business is mostly concentrated in the capital scale of less than 10 billion VND with 25,919 enterprises (accounting for 91.1% compared to the same period in 2020).
At the scale of 10–20 billion VND, there are 1,366 enterprises (accounting for 4.2% compared to the same period in 2020); from 20– 0 billion VND, there are 664 enterprises (accounting for 2.2% compared to the same period in 2020); from 50–100 billion VND, there are 230 enterprises (accounting for 0.9% compared to the same period in 2020). Therefore, in the era of strong changes in the way the company operates, the faster, more accurate, and appropriate information, as well as the company, must build an internal control system that is not only effective and efficient but also responsive to the changes in the world is moving into the digital era, which can help the company adapt and overcome these difficult times. Moreover, the internal control system plays an important role in the internal auditing practices since the internal auditors might be considered as being specialists in management control (Chambers, Selim&Vinten, 1987). It is also one of the most important content when auditors perform audit activities such as operational audits, financial reporting audits, and compliance audits.
Understanding the internal control system of the enterprise assists auditors understand the specific working methods of different departments and divisions in the enterprise as well as the interaction between these departments and divisions.