Research On Internal Control Defects And Optimization Of G Group

Since the 21st century,under the requirements of the relevant documents on internal control and for the sake of long-term effective development,listed companies of our country have gradually realized that effective internal control can improve the efficiency of production and operation,standardize the procedures for handling affairs,identify risks in advance,and calmly face challenges.However,if there are loopholes in the design or operation of internal control,that is,there arc defects in internal control,the enterprise may have fraud,earnings management,illegal guarantee,fund occupation and other problems.G Group,a longestablished listed company in the gold industry,voluntarily disclosed its own violations in April 2019,pointing out that the company had several major defects in its internal control.Shortly thereafter,in March 2021,G Group was forced to delist due to the fact that its share price fell below par for 20 consecutive trading days,triggering the latest delisting regulations.This paper takes G Group as the research object.Firstly,it sorts out the literature of domestic and foreign scholars on internal control defects,and combines them with the concepts and theories related to internal control defects as the theoretical basis for this paper.Secondly,it introduces the basic situation of the case object G group,and explains that there are five major defects in the internal control of the company,including illegal loans,huge illegal guarantee,illegal use of seals,lack of litigation materials and untimely disclosure of major events.Using the case analysis method and event study method,it is found that the defects resulted in financial difficulties,lawsuits,non-standard audit opinions on financial reports for three consecutive years,supervision and punishment,stock price decline and delisting.Thirdly,from the five elements of COSO,combining with the specific situation of G Group,the causes of internal control defects are analyzed:(1)The control environment is chaotic,mainly because of unreasonable organizational structure,dominance of one share and low quality of employees;(2)Lack of risk assessment,mainly reflected in the merger and acquisition,inventory,accounts receivable,and fund management;(3)Imperfect control activities,mainly manifested in the aspects of external guarantee,seal management,financing and loan,and litigation management;(4)The information and communication are insufficient internally and externally;(5)The failure of internal supervision is mainly due to the lack of perfect supervision mechanism and weak independence of supervision subject.Then,through the correspondence between major defects in internal control and the causes of defects,it is found that major defects are formed by the joint action of multiple factors,and the formation of the five major defects all have problems in information and communication and internal supervision;Therefore,a multipronged approach should be taken in the rectification of defects in order to maximize the optimization of internal control.Finally,based on the above analysis,an optimization plan for G Group’s internal control is designed,which is expected to help G group and other companies with similar internal control defects improve the internal control situation.It is also hoped that the consequences caused by the internal control defects of G group can give some warnings to companies that intend to violate laws and regulations and have long-term shell operation.