An Internal Control Evaluation Study Based On Risk Management In Commercial Banks

As a credit intermediary, risks continuously exist in the business process of commercial banks. For banks, risk is both an opportunity and a challenge. The risk of commercial banks is so concealment, linked, and quickly, once the risk of commercial banks is outbreak, commercial banks, or even the economic and social will have a very harmful impact. Therefore, if commercial banks hope long-term and stable development, they must be prevent and control risks effectively. It can be said that the process commercial banks provide financial services equals to the process manage and control risk.After accession to WTO, China’s commercial banks actively face the challenges from the full liberalization of the financial system, effort to reduce and control the operating risk. Internal control evaluation, as an effective guard mechanism for financial risks, began attaches in the banking sector. In recent years, China also gradually introduced "Internal Control Guidelines of Commercial Banks"(2002),"Internal Control Evaluation Pilot Approach of Commercial Banks"(2004),"Basic Specification of Enterprise Internal Control"(2008), and "Supporting Guidelines of Enterprise Internal Control"(2010), which provide the guidance for the standard and systematic internal control in China commercial banks. China commercial banks have made some effectiveness in the internal control evaluation aspects, strengthened the supervision and check in Bank.Through simple statistical analysis for the internal control self-assessment reported by listed banks, we found that, in terms of guarding against risks, the internal control evaluation is imperfect in China commercial banks, and their construction for internal control evaluation is still in a growth period. There are many reasons, a subjective reason is the internal control environment, banks themselves no attention for internal control and its evaluation; an objective reason is no unified evaluation system.For China’s commercial banks, risk management and internal controls are not strange, but in practical work, the practice of internal control and risk management in commercial banks was not satisfactory. As a guarantee of safe and sound in commercial banks, risk management and internal control assessment should not be separated, they should be integrated to a whole. In2005, COSO released "enterprise risk management-integrated framework", provides us a well model. Therefore this article attempts to integration internal control evaluation and risk management in commercial banks, to construct an evaluation system of internal control based on the risk management in commercial bank, now direct research in this area is very small.Compared to the previous internal control framework, the content of enterprise risk management integrated framework is wider, introduces a risk management concept, broaden and refine the concept of internal control, a framework more comprehensively focus on risk. Specifically, on the basis of internal control framework, enterprise risk management integrated framework has added a new idea, one goal, two concepts and three elements, namely risk portfolio view, strategic objectives, risk appetite, risk acceptability and target setting, the concept of identification, risk response elements. To integrate risk management and internal control evaluation, firstly integrate the target of risk management and the target of internal control evaluation into only one strategy target; secondly integrate eight elements to five elements, these are internal environment, risk management activities, control activities, information and communication, and supervision; lastly bring risk combination view, risk preference, and acceptable risk degree concept into evaluation. In this way, the integration forms, but the essentially integration should realize on the construction of internal control evaluation system.After the integration mechanisms above, then this article is to build a evaluation system of internal control in commercial bank based on risk management system, including the construction principle of internal control assessment, the subject of internal control evaluation, the object and the standards of internal control assessment, the method and procedure in internal control assessment, and a feasible mechanism to ensure the implementation of internal control evaluation.Main contribution of this paper is the combination between internal control evaluation system and risk management, made a comprehensive evaluation system of internal control based on risk management. To construct internal control evaluation system oriented to risk management, helps commercial banks work to long-term development strategy target, ensure the construction and execution of internal control more strategic and purpose; while, construct internal control evaluation system based on risk management in commercial banks, helps commercial banks reflected the concept and behavior of risk management in the daily operating management process, and also can effectively upgrade the control ability of risk management. Through integration of risk management and internal control evaluation, China’s overall management of commercial banks improves. In future fierce banking competition, these lay a solid foundation for their leading.