Internal Control to Resist Corruption: Experiences from U.K. and U.S.

Like in Vietnam, businesses in other countries are also considerably different in capacity, knowledge and resources of risk, compliance and control. This difference depends on the size, type of business and the market in which the business is involved.

In the newly amended Law on Corruption, set to take effect in July 2019, this difference is clearly stated in Part 2, Articles 80 and 81, which require public companies, credit institutions and investment funds to have more comprehensive supervision and inspection mechanisms. Clearly, these companies and organizations are paying close attention to this issue.

According to the Report “Applying internal control and the Code of Conduct in Vietnamese businesses: Reality and recommendations” launched by the Vietnam Chamber of Commerce and Industry (VCCI), the United Kingdom and the United States are at the forefront of developing international standards of corporate governance, accounting and international auditing, in which internal control is an integral content. But, these countries have their own approach. In the VCCI's study on international experience, the main reference is the way in which U.K. companies work, not to confirm that the U.K. system is the best and unique. This can be explained by the fact that both the U.K. (one of the most developed economies) and Vietnam signed international conventions on internal control, auditing, accounting standards and anticorruption.

In fact, this is also the case for other countries. Regulations on comprehensive internal control are applied by most businesses on their public means. Unlisted businesses will not be required to comply with such detailed and supervised regulations.

According to the report, for example, in legal perspective, common international standards on internal control, accounting and risk management are mainly based on U.S. practices but it is important to note that each country has its own standards, regulations and laws on corporate governance, accounting, reporting and risk management developed and executed according to its laws.

Taking the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as an example, COSO principles and practices are derived from the United States and bound to U.S. laws. These standards are used by U.S. businesses to assess their compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and other laws such as the Sarbanes Oxley Act. According to U.S. laws, businesses - especially listed ones - are obliged to report a lot of information on finance, management and governance. Only a highly integrated system that involves in executing strategies at all levels and relates to operation, reporting and compliance can meet this reporting requirement.

However, the U.K. is a good example of how countries build their own principles and methods of applying internal control. Although the COSO standard is considered a great evaluation framework and has a great influence on international standards, in the U.K., COSO is not really a popular name.

Internal control in international organizations are also related to obligations to shareholders. The Board of Directors, which represent shareholder interests, scrutinize operations but ensure that the company is pursuing clear objectives and self-monitoring mechanisms. The internal control mechanism requires relevant information to be provided. To a certain extent, to make information provided objective, or ​​in other words, the Management Board does not interfere with the information provided. In most developed countries, laws and directive documents on corporate governance standards are already issued. Internal control is a tool to implement corporate governance.

The comprehensively integrated systems such as the COSO Framework are often used by public companies - listed companies or state-owned companies. Private companies tend to have their own internal control systems, including some COSO Framework contents. But if laws or corporate governance codes do not require it, companies do not seem to invest a large sum of money in this costly system like public companies or state-owned companies. Smaller companies often do not have adequate and comprehensive internal control mechanism. In international management practices, internal control mechanism often corresponds to the scale, risk history and complexity of business operations.

A good application of internal control is a way to resist corruption within an enterprise. According to Mr. Gareth Ward, British Ambassador to Vietnam, the U.K.’s latest anticorruption strategy, issued in December 2017, sets six clear priorities: Reducing insider risks in risky fields such as border gates and seaports; improving U.K. integrity as an international financial center; promoting integrity in both the public and private sectors; reducing corruption in public procurement; improving the global business environment; and cooperating with other countries in anticorruption.

Within the framework of the Project “Promoting a fair business environment in ASEAN” launched by the United Nations Development Program (UNDP) with the support of the Prosperity Fund, the U.K. will continue to coordinate with key anticorruption agencies, including the Central Internal Affairs Committee, the Judiciary Committee of the National Assembly, the Government Inspectorate and VCCI to promote the Integrity in Business Initiative as a policy dialogue platform for the Government of Vietnam and businesses to eliminate barriers, obstacles in business and create a level playing field for all businesses.

“The Vietnamese government has affirmed its strong commitment to anticorruption, demonstrated by a comprehensive revision of the legal framework to conform to international standards. For the first time, a regulation on corruption is applied to the private sector. The recently revised Law on Anticorruption has a separate chapter on promoting integrity in business. I am confident that this law will motivate a culture of integrity business in Vietnam by adopting the code of conduct and a strict compliance process. This has a very important role for Vietnam to continue its successful economic development and attract more foreign investors and businesses by strengthening investor confidence,” said the ambassador.

However, he noted that, in order to apply an effective corporate integrity program, it is necessary to involve all stakeholders, not only the Government but also businesses and social organizations.

Quynh Anh