The effect of internal control on the effectiveness of financial management in regional universities in Vietnam - Thai Nguyen University case study

er internal control and the effectiveness of financial management of Thai Nguyen University towards financial autonomy. Scope of the research: The thesis focuses on researching the effects of factors of internal control on financial management effectiveness, a specific case study of Thai Nguyen University. Analytical data is mainly obtained between 2015 and 2017. 4. New contributions of the thesis The expected new contributions of the thesis: - Theoretically: + Generalizing the basic theoretical issues about internal control and financial management in universities in general and regional universities in particular. + Analysis of internal control of the regional university's financial management and the impact of policies and legal institutions on the operation of the internal control system and the effectiveness of financial management of regional universities in the context towards ensuring financial autonomy. + Indicate the effect of internal control on financial management effectiveness at regional universities and evaluate that relationship 4 - In practical terms: + Study and clarify the relationship and influence of factors under internal control on the effectiveness of financial management at TNU. + From the research results, it shows the internal control factors that affect the effectiveness of TNU's financial management in the context of aiming to ensure financial autonomy, making recommendations for necessary adjustments and remedies. for internal control, improve the effectiveness of financial management in order to maximize the TNU's autonomy within the legal framework; from there, it is possible to adjust and draw common experiences for regional universities in Vietnam. 5. Thesis structure In addition to the Introduction and Conclusion, the thesis includes 5 chapters: Chapter 1: Research overview Chapter 2: Theory of internal control and university financial management in terms of financial autonomy Chapter 3: Research model and research method Chapter 4: Research background and research results on the effects of internal control on financial management in Thai Nguyen University Chapter 5: Analyzing research results and proposing solutions to enhance internal control to improve financial management effectiveness in Thai Nguyen University 5 CHAPTER 1. OVERVIEW OF RESEARCH 1.1. Study general issues of Internal Control Research on Internal Control by Charles A. Saia (1992) identifies the elements that make up the internal control system including: control environment, risk assessment, control activities, information and communication, and monitoring. Many studies on internal control by researchers mention the concept of internal control, types of control in relation to internal audit or financial audit. In particular, the Modern Internal Audit inherits Brink's point of view, author Robert R. Moeller (2009, when developing more the COSO theory for the purpose of internal audit, has added a number of items. the objectives of internal control should be achieved. In Vietnam, studies on the concept of the internal control system, the constituent elements of the internal control system, the roles and responsibilities of the objects related to the internal control, the potential limitations of the internal control system, the sequence of and research method of internal control system of auditors is mainly textbooks, books, magazines, articles. 1.2. Studies of internal control in universities These studies focus on the internal control framework of universities such as Weixing Wang (2010), M. Popescu and A. Dacălu (2012), He Fan et al. (2013). ... asserting control is a tool of management. In Vietnam, in the current study on Internal Control System in public universities in Vietnam (2012), the authors Dinh The Hung, Nguyen Thi Hong Thuy, Han Thi Lan Thu identified internal control. The set of public universities in Vietnam is composed of the following factors: Control Environment, Risk Assessment, Accounting System, Accounting Information System, Control and Supervision Procedures. 1.3. Studies of financial management and financial autonomy in universities 6 Studying in this respect, the authors have mentioned many different issues such as comparing the efficiency of public and private educational financial management (Estelle James et al., 1996); the diversification of financial resources of universities (Estermann, 2011); recognizing the problem of financial autonomy of universities is an inevitable problem (Michael Mitsopoulos and Theodore Pelagidis, 2008). The researches in Vietnam on the field of financial management in general in universities still mainly focus on solving management issues, which are topical. Research results do not aim to rule, so it can only solve specific management problems of a specific object, in a certain time period. Financial management of public universities in Vietnam, the author Vu Thi Thanh Thuy (2012) has determined the scale of financial autonomy of universities by the ratio of non-state revenues / total revenues of schools and the ability to autonomy and decide on categories and rates of expenditure. 1.4. Studies on the relationship between internal control and financial management in universities In these studies, the authors confirm that there is a positive influence relationship between internal control and financial management in universities. In summary, previous studies have addressed the following problems: 1. Determine the goals and factors of the university's internal control systems. 2. Evaluate the level of awareness and implementation of internal control by senior leaders as well as officers and employees 3. Elements of university financial management 4. Determine the scale of financial autonomy and the factors affecting financial autonomy of universities 7 5. Determine the relationship between Internal Audit and financial management in universities, but the resolution level is still not thorough. Thus, through the document review process, according to the author's understanding, there still exist quite a lot of gaps in the research on internal control and financial autonomy in public universities in Vietnam in general. First. Studies on internal control systems and financial management of universities in the world may not be suitable for higher education institutions in Vietnam. Second. There are no studies in Vietnam showing the rule of the relationship between internal control and financial management. Third. There are no studies to assess the impact of macro management decisions on the establishment and operation of internal control by State budget-using units. Fourth. Studies with self-financed units also focus on solutions to improve the autonomy of the units without assessing the impact of autonomy on financial management decisions. main. Fifth. No studies have yet studied the relationship between internal control systems and financial autonomy in universities. Sixth. Up to now, the research has only focused on solving problems of internal control or financial autonomy for public universities, but there is no research to solve problems of regional universities. Seventh. In the context that Vietnamese universities move towards financial autonomy, achieving financial management effectiveness is an extremely urgent issue, but studies on financial management effectiveness in general and management effectiveness. There are very few documents mentioned in financial management in the university in particular. Stemming from the above reasons, I chose to study the topic "Effects of internal control on the effectiveness of financial management in regional universities in Vietnam - Thai Nguyen University case study" to 8 clarify Demonstrating the influence of internal control on financial management effectiveness in regional universities in the context of leading to financial autonomy. EXECUTIVE SUMMARY CHAPTER 1 9 CHAPTER 2. THEORY OF INTERNAL CONTROLS AND UNIVERSITY FINANCIAL MANAGEMENT IN TERMS OF FINANCIAL AUTONOMY 2.1. Overview of public university "Public higher education institutions established by the State, investing in building facilities and ensuring recurrent expenditure" 2.2. Managing college finance 2.2.1. Viewpoint on university financial management It can be understood that: Management of university finance is the impact of Managers on financial activities (revenue management, expenditure management, asset management, financial control) in the unit through the a financial management tool designed to achieve set targets based on current legislation. Financial management of the university is an ongoing process that includes: setting up planning targets, making cost estimates; receive budget estimates and make allocations; organization creating and using financial resources; guide, inspect and supervise the use of financial resources by the affiliated units; implement financial disclosure according to regulations. 2.2.2. Financial management towards financial autonomy in university In terms of financial autonomy, universities must ensure their own revenues; balance revenue and expenditure; ensure cost recovery and accumulation is required; Financial management is similar to an independent business. The new situation requires universities to make changes in financial management towards financial sustainability in order to ensure development goals. Contents of university financial management include: (1) Managing the mobilization of financial resources, (2) Managing the allocation and use of financial resources, and (3) Financial control . 2.2.2.1. Manage mobilization of financial resources - Financial resources from the state budget - Financial sources outside the state budget 10 2.2.2.2. Managing the allocation and use of financial resources 2.2.2.3. Financial control The financial management tools in public universities include: * Budget estimate * Work plan * Internal spending rules * Accounting, accounting, auditing * Inspection system, internal inspection * Organize the financial management apparatus 2.2.3. Effectivenes of financial management In the context of financial autonomy, the financial management of a regional university is considered effective when the objectives of: (1) profitability is achieved; (2) Diversified revenue sources; (3) Ensuring development goals; (4) Increase income for staff and trainers. 2.3. Internal control in university 2.3.1. Viewpoints on internal control in universities Many internal audit frameworks have been developed, from which there are separate definitions of the internal control and the different systemic approaches. On the basis of the research purpose and scope of the thesis, the author chooses to use the internal control framework according to COSO as a orientation for the determination of the components of the internal control system in the regional university. Accordingly, Internal Audit includes 5 elements: Control Environment, Risk Management, Information and Communication, Control Activities, and Monitoring. 2.3.2. Overview of internal control 11 COSO's concept of KSNB has been updated to show an extension of its reporting objective: “Internal control is a process, influenced by management, management and other employees. to provide reasonable assurance regarding the achievement of the entity's performance, reporting, and compliance objectives ”. Many authors have specified the goals of internal control within an organization. The author Dinh The Hung and his colleagues in a study on the internal control system in the public universities in Vietnam have generalized the definitions of the internal control by COSO and INTOSAI, thereby affirming: , the internal control system is also understood in the sense that the process governed by the entity's managers and employees, designed to provide a reasonable assurance of achieving the objectives: efficiency and effectiveness of the activity; The reliability of financial statements; Compliance with laws and regulations ”. The regional university belongs to the public tertiary education system, so the above statement is consistent with the regional university internal control system. 2.3.3. Factors that constitute the university's internal control According to COSO, Internal control consists of 5 components: Control Environment, Risk Assessment, Control Activities, Information and Communication, Supervisory Activities. 2.4. Relationship between internal control and managerial effectiveness The studies all show that, there exists a relationship between the internal control and the financial performance of an organization, and the internal control has a positive effect on revenue and profit. As analyzed earlier, the organization can achieve other development goals when the profit goal is reached. And so, there exists a link between Internal Audit and financial management effectiveness. SUMMARY OF CHAPTER 2 12 CHAPTER 3. RESEARCH METHODS 3.1. Theoretical basis of the study 3.1.1. Foundation theory *Contingency Theory Contingency theory explains the variety of practical internal control systems and, therefore, is completely applicable to this study. Universities are economic organizations with specific missions and objectives that are different from enterprises and other organizations. The existence of internal control within the university ensures that the institution meets its goals, and due to the specific nature of the university, the internal control requires appropriate adjustments. *Stakeholder Theory In this study, the theory of stakeholders is used to explain the management's decision-making based on consideration of the relationships and benefits with outside and within the university. 3.1.2. Research model building The research model is defined as follows: Figure 3.2. Research models Control environment Risk assessment Information and communication Control operations Monitoring Effectiveness of university financial management in the context towards financial autonomy 13 3.1.3. Determine the observed variables of the research model On the basis of COSO's 17 principles, the observed variables for Internal Control are identified by each element: Control Environment, Risk Assessment, Information and Communication, Control Control operations and Monitoring. The observed variables of Financial Management Effectiveness include: the university is likely to gain profits when the university moves to financial autonomy; The university has the ability to diversify its sources of income when the university is self-financed; the university has the ability to ensure development goals when the university is self- financed; The university has the ability to ensure increased income for staff and lecturers when the university turns to financial autonomy 3.2. Research hypothesis Hypothesis (H1): The Controlled Environment has a positive impact on the effectiveness of financial management of TNU in the condition of financial autonomy Hypothesis (H2): There is a positive impact of risk assessment on the effectiveness of financial management of the University of Technology in terms of financial autonomy. Hypothesis (H3): Information and communication have a positive impact on the effectiveness of financial management of TNU in the condition of financial autonomy. Hypothesis (H4): There is a positive impact of control activities on the effectiveness of financial management of TNU Hypothesis (H5) There is a positive correlation between monitoring activities and the effectiveness of financial management of the TNU 3.3. Data collection methods 14 Build scales and prepare for preliminary investigation. The preliminary survey questionnaire was sent to some experts, then adjusted and conducted with a small sample size to assess the reliability of the scale. The results of the analysis of the preliminary survey data together with the responses of the respondents is the basis of adjusting the questionnaire, eliminating the observed variables that overlap or do not satisfy the conditions of quantitative analysis, thereby to adapt the questionnaire before large-scale investigation. Experts are selected based on the criteria of position and long service. 3.4. Research data source - Secondary data source - Primary documents 3.5. Data analysis method (1) Evaluate how the financial management effectiveness of the TNU has been achieved through the assessment of the achieved financial management objectives. - Evaluate ability to achieve profit - Evaluate the possibility of diversifying revenue sources - Evaluate the ability to ensure development goals - The ability to increase income for staff and trainers (2) Study on the effects of Internal Audit on the effectiveness of financial management of TNU The author uses SPSS20 software to analyze the relationship between internal control and the effectiveness of financial management of Thai Nguyen University in the context towards financial autonomy. The survey table, after being built, will conduct a pilot test with a small sample 15 and consult with experts before putting it into the official survey. Use Cronbach's Alpha's test to evaluate the quality of the scale. - Analysis of discovery factors EFA - Test KMO - Bartlett testing. - Use the variance extracted (% cumulative variance) to evaluate the explanatory level of the observed variables for the factors. - Pearson correlation analysis and regression analysis was performed by each element for the effectiveness of financial management SUMMARY OF CHAPTER 3 16 CHAPTER 4. BACKGROUND OF THE STUDY AND RESEARCH RESULTS ON THE EFFECT OF INTERNAL CONTROLS ON FINANCIAL MANAGEMENT EFFICIENCY IN THAI NGUYEN UNIVERSITY 4.1. The research background of the thesis 4.1.1. Regional universities and the characteristics of regional universities in the Vietnamese public university system 4.1.2. Overview of Thai Nguyen University On the basis of the reorganization of universities in Thai Nguyen province, on April 4, 1994, Thai Nguyen University (transaction name in English: Thai Nguyen University, abbreviated as TNU) was established under the Decree. No. 31 / CP of the government. As one of 5 universities in Vietnam following the 2-level university model, Thai Nguyen University is assigned to be the center of human resource training for the provinces, training multi-disciplinary, multi-field. Scientific research and technology transfer tasks in order to contribute to the socio-economic development of the Northern midlands and mountainous regions. Currently, Thai Nguyen University has a total of 29 member units with 11 training units, 15 research units, and 03 service units. 4.2. Financial management situation of Thai Nguyen University 4.2.1. Revenue management and exploitation Thai Nguyen University's revenue sources are derived from: - Funded by the State Budget - Sources of collection of fees, charges and other non-business revenues 4.2.2. Managing the use of financial resources 4.2.2.1. Distribution of career revenues at Thai Nguyen University 17 4.2.2.2. Allocating State Budget estimates 4.2.3. Managing the appropriation and use of funds 4.2.4. Controlling financial management in Thai Nguyen University 4.3. Research results 4.3.1. Evaluate effectiveness of financial management of Thai Nguyen University Evaluate how effective the financial management of TNU has been achieved by evaluating the achieved financial management goals. The results of assessing the effectiveness of TNU's financial management: potentially profitable but not high; revenue sources are not really diversified and effective; the ability to increase income for staff faces many difficulties; The ability to achieve development goals is affected by unreasonable expenditure structure 4.3.2. Effect of internal control on financial management effectiveness of Thai Nguyen University 4.3.2.1. Preliminary investigation From the results of the preliminary survey and after adjusting the questionnaire, the author conducted a formal survey. Research model after the survey has changed, including 18 independent variables, 1 dependent variable with 58 observations. 4.3.2.2. Official investigation * Determination of sample size: The author determines that the minimum sample size is 290, satisfying the sample size condition. The results obtained 298 valid votes, accounting for 85.14% of the total number of questionnaires, satisfying the minimum sample size requirement for the study. After analyzing EFA we 18 have 18 independent variables with 52 measurement variables grouped into 18 factors. * Effect of the Control Environment on Financial Management Effectiveness HLQLTC = 0.26GTDAODUC + 0.306LANHDAO + 0.131CCTOCHUC + 0.212CSNHANSU + 0.116TNCANHAN + 0.152CSNHANUOC In which, the effectiveness of financial management of Thai Nguyen University is most influenced by the leadership role and established ethical values as well as personnel policy. * Effect of Risk Assessment on Financial Management Effectiveness HLQLTC = 0.502XDMUCTIEU + 0.296NDRUIRO + 0.168DGGIANLAN + 0.22TDDANGKE The effectiveness of financial management of Đại học Thái Nguyên is most influenced by the targeting and identification of risks, and it is also important to pay attention to significant changes. * Effect of Control Activity on Financial Management Effectiveness HLQLTC = 0.617CLKIEMSOAT + 0.136SDCONGNGHE + 0.204TUANTHU In which, the effectiveness of the financial management of Thái Nguyên university is most affected by the selection of control activities. * Effect of Information and Communication on Financial Management Effectiveness HLQLTC = 0.560TTTHICHHOP + 0.171TTNOIBO + 0.233TTBENNGOAI The effectiveness of financial management of Thái Nguyên university is most influenced by the appropriate use of information. 19 * Effect of Supervision on Financial Management Effectiveness HLQLTC = 0.481GIAMSAT + 0.385SCHIEMKHUYET In relation to the effectiveness of financial management of the National University of Technology, both supervisory drug factors have a great influence. SUMMARY OF CHAPTER 4 20 CHAPTER 5. ANALYSIS OF RESEARCH RESULTS AND PROPOSING SOLUTIONS TO PROMOTE INTERNAL CONTROLS TO ENHANCE EFFICIENCY OF FINANCIAL MANAGEMENT IN THAI NGUYEN UNIVERSITY 5.1. Analysis of research results From the research results on the current situation and evaluation of the effectiveness of financial management in the VNU, it is possible to summarize the main issues as follows: (1) While there is still support from the state budget, most of the member higher education institutions of the Thái Nguyên university have achieved the target of collecting enough to cover costs and have accumulated. The ability to self-pay regularly is the premise for schools to achieve profits in the future context. However, the level of self-assurance of recurrent expenditure of these units is not high, due to low income while recurrent expenditure increases. (2) The revenue sources of the University of Natural Resources are not diversified and have not been exploited effectively. (3) The proportion of increasing average income of faculty staff over the years has not been stable, showing that the ability to increase income for faculty staff of the university faces many difficulties in the new period. This is an inevitable result of an unreasonable revenue structure, depending too much on enrollment ability, and other career revenue sources have not brought high efficiency. (4) The development goals of the university are determined according to each historical period, however, the expenditure structure in 21 the total expenditure is not reasonable and has not met the operational and development goals of a regional university. 5.2. Development orientation of Thai Nguyen University to 2030 5.3. Some solutions to strengthen internal control to improve financial management effectiveness in Thai Nguyen University 5.3.1. Strengthen internal controls to improve financial management effectiveness in Thai Nguyen University (1) Propose perfecting the internal control environment (2) Risk assessment proposal (3) Suggestions for completing Information and