Research On Evaluation System Of Internal Control In Commercial Banks

Recent years, with the development of reform in domestic banking industry, some deposited unsafe factors in banking industry have emerged. Economic criminal cases happen frequently and bring huge loss to banks, some of which even lead to instability in local financial system. Most of these cases are caused by faults in internal control system of banks. So the systematic theoretic research on internal control system of commercial banks is an actual need for improving capabilities of risk management and promoting stable operation of commercial banks.This paper is theoretically based on COSO internal control framework and makes a detailed comparison from the aspect of existing gap between domestic banks and international advanced banks. Based on comparison and analysis, this paper constructs a complete set of comprehensive evaluation system and method for bottom branches of commercial banks. This evaluation system is made up of seven evaluation elements, containing fourteen qualitative indicators and nine quantitative indicators. This paper adopts Delphi method for determining weights of qualitative indicators and it learns from fuzzy evaluation principle for data processing. For determining weights of quantitative indicators, this paper uses maximizing deviation method. This paper chooses data of 18 branches of C bank in J city and does an empirical research. It uses this evaluation system to work out an integral evaluation result of internal control. Moreover, this paper analyses specific problems existing in internal control system of C bank. It also takes control process of fixed assets loans for instance and analyzes risk control points and measures in business process.Based on empirical research of 18 branches of C bank in J city, this paper puts forward policy recommendations for improving internal control system of commercial banks: i )Reinforce compliance management and cultivate good internal control environment; ii )Adopt vertical monitor and report system order to reduce agency cost; iii)Pay attention to operational objective among objectives of internal control; iv)Build efficient operational risk management system; v ) Turn internal audit and control self-assessment into advantage in order to improve efficiency of internal control; vi)Pay attention to promotion of external supervision on internal control system of commercial banks.The innovations of this paper are as follows: i )The comprehensive evaluation system of internal control which is built by this paper basically covers all evaluation points of internal control system of commercial banks and it has practical operability. ii )This paper uses math model to solve weights of indicators in the evaluation system and eliminates the effect of subjective factors in internal control evaluation on the objectiveness of evaluation results with utmost possibility. iii)This paper puts forward improvement recommendations for construction of internal control system of domestic commercial banks and analyzes the relationship between internal control and corporate governance, risk management, compliance management, and process banks. iv)Compared with existing research on internal control of commercial banks, this paper pays attention to the effect of regulation environment and external supervision and analyzes related institutions and laws.Because of limitation in the depth of research, this paper has three insufficiencies: i )It can't solve the weights of qualitative and quantitative indicator systems in the whole evaluation indicator system through scientific math models. ii)It can't put forward more detailed and concrete evaluation standard for evaluation of qualitative indicators. iii)It doesn't measure the effectiveness of internal control system from the aspect of the cost and benefit of internal control system.