Internal Control Theory Based Perspective Study On The Risk Control Of Local Government Debt

Since the economic crisis occurred in 2008, the world economy has been in an unbalanced condition. The economic system, which was badly beaten, has not recovered yet. The re-balance of world economy still has a long way to go. Under such background, the biggest risk China faced with is that the financial system suffers from the consequence caused by the huge local debt and the probability of real estate bubble bursting. Overall, the debt risk of China is still under control. But from the view of micro-level, under high-risk external environment, the risk of local government debt faced with still can’t be neglected. The central government is putting increasing emphasis on local government debt. According to The Budget Law Amendment deliberated and passed in 2014, it is permitted that the local government could borrowing with moderate scale, indicating the necessity of building specific alarming system about debt risk and effective handling emergency mechanism. That is also the vital important problem to be solved urgently by local governments across the county.This essay applies with normative research method and empirical research method. At the beginning, it interprets the logical relationship between internal control and risk control and makes further study on the guidance effect and influence approach the internal control to external control. It tries to find the integrating point of the internal control theory and local government debt risk control and reveals the importance of this research direction.Then this essay finds the shortages of risk control by studying the new features of local government debt, the risk categories and the status quo of risk control. Applying to the internal control theory, it tries to build a comprehensive and scientific risk control system of local government debt through studying the aims, principles, elements and internal relationship between these elements of local government risk control.Finally, starting from the risk control process, this essay builds alarming model and verifies the validity by data. It gives control measures to all aspects of the whole process respectively, such as environment, indicators of evaluation system, control activities, information disclosure, the ongoing supervision and so on. It tries to make this model to be an scientific and effective risk control system of local government debt.By applying the internal control theory and method, under the guidance of the aims, principles and five elements of the local government debt risk control, this essay make further study on the five aspects of internal control theory and puts forward specific measures on many aspects including the appropriate environment demands of debt control, effective risk alarming model, comprehensive index evaluation system, scientific risk control measures, the comprehensive risk information disclosure and sustainable supervision model.By studying the distribution patterns of debt risk indicators and the feature of Discriminant Analysis, it builds the debt risk alarming model by Kernel Fisher Discriminant Analysis and solves the problem of debt risk alarming within small sample size. This essay uses the seven-year’s data from 8 cities from Shandong Province to generate the discrimination function and verifies the validity of debt risk alarming model based on Fisher discriminant function.