Factors Affecting the Efficiency of the Internal Control System, Impact

on the Competitiveness of Vietnam Businesses. Case Study in Binh

Duong Province

NGUYEN VUONG THANH LONG

Economics Faculty, Thu Dau Mot University,

06 Tran Van on Street, Binh Duong Province, 820000, VIETNAM

NGUYEN HUU PHU

Board of Provost, Graduate School, Duy Tan University,

03 Quang Trung Street, Da Nang City, 550000, VIETNAM

VO VAN NHI

Accounting Faculty, University of Economics Ho Chi Minh City,

59C Nguyen Dinh Chieu Street, Ho Chi Minh City, 70000, VIETNAM

LE DUC TOAN

Socio – Eco Research Institute, Graduate School, Duy Tan University,

03 Quang Trung Street, Da Nang City, 550000, VIETNAM

NGUYEN PHI SON

Board of Provost, Graduate School, Duy Tan University,

03 Quang Trung Street, Da Nang City, 550000, VIETNAM

Abstract: The article presents research on the factors affecting the effectiveness of the internal control system,

thereby finding out the relationship between the effectiveness of the internal control system and the

competitiveness of enterprises. The data was surveyed at 150 enterprises in Binh Duong province and

processed through SPSS 20.0 software. The results show that there are 6 factors affecting the effectiveness of

the internal control system. The control environment is a factor that strongly influences the effectiveness of

internal control. The effectiveness of the internal control system affects the competitiveness of the enterprise.

From the research results, the article has proposed some managerial implications for the relevant units.

Keywords: factors, effectiveness, internal control system, competitiveness, Vietnam.

Received: September 12, 2021. Revised: July 2, 2022. Accepted: July 23, 2022. Published: September 5, 2022.

1 Introduction

International economic integration is an

opportunity to help Vietnam's economy make great

progress, but businesses in Vietnam also face great

challenges in terms of competitiveness. To cope

with competitive pressure, Vietnamese enterprises

must always be proactive in all production and

business activities, on the one hand, ensure

compliance with the law, and on the other hand,

effectively use existing resources to achieve

business goals. The core issue is that the enterprise

must have an effective internal control system.

Internal control is an effective tool in corporate

governance. Internal control and the effectiveness

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1373

Volume 19, 2022

of the internal control system have been

implemented by many researchers around the

world. However, in Vietnam, research is still

limited on factors affecting the effectiveness and

competitiveness of internal control systems. There

is some independent research about the

effectiveness of the internal control system or

manufactory competitiveness. There are few studies

that combine them. Therefore, it is necessary to

have specific studies on the factors affecting the

effectiveness of the internal control system and

competitiveness. It is not only to help enterprises

have appropriate policies but also to give empirical

case studies for teaching and

research. Binh Duong is one of the provinces with

many suitable enterprises for research on this issue.

2 Literature Review

Derived from the agency theory initiated by Jensen

and Meckling [12] in the work "Theory of the firm:

Manager behavior, agency costs and, ownership

structure" introduced present their views on agent

theory. Agency theory explains the conflict of

interest relationship between the principal and the

agent and suggests measures to limit these

conflicts. Agency theory can be used to explain the

reason why it is necessary to design a good internal

control system, a good internal control system, to

reduce proxy costs and improve operational

efficiency at enterprises. Karma.

Research by Oksana A. & Nadezhda A. [16] on the

main elements of the internal control system in

managing the competitiveness of domestic

enterprises. Based on the systems approach, the

study considers internal control as an actual system

with basic properties. The study focuses on

analyzing the main elements of the internal control

system. The proposed approach includes the

following groups of factors: control objectives,

control objects, control environment, control

information, risk management, and, control

monitoring. Research by Bader M, M, A. & Zaher

A, F, A. [5] determines the influence of internal

control on a bank's competitive advantage with

three aspects: administrative control, financial

control, and, operating control. Research by

Buthayna M., Rand H, A., Bader Y, O. & Ali T. [6]

on examining the influence of the organization's

internal control system on organizational

performance. This study aims to investigate the

impact of the internal control system, including

Control Environment, Communication, Risk

Management, Operational Control, and, Monitoring

on organizational performance in Jordan.

In Vietnam, most of the authors only focus on

research on the factors affecting the effectiveness

of the internal control system, not on the

effectiveness of the internal control system

competitive force systems.

3 Conceptual Framework and

Research Hypotheses

The control environment is important because any

mistake can lead to fraud [5]. A good control

environment will lead to a reduction in errors and

anomalies [9]. Every company needs to keep

updating its internal control system due to the

changing environment.

Hypothesis 1: The control environment has a

positive influence on the effectiveness of internal

control

Risk assessment is important; Risks need to

be identified, analyzed, estimated, and, periodically

reviewed [16]. Risk assessment can be classified

into high, medium, and low. This will determine

the severity or treatment of each potential risk and

which areas need to be monitored and proactively

acted on [6].

Hypothesis 2: Risk assessment has a positive

influence on the effectiveness of internal control

Control processes are developed based on

the identified risk to reduce the odds of the risk

occurring. These control measures are put in place

to achieve the objectives of the enterprise [7]. The

identified risks can be prevented from occurring

through the organization of a sound system of

internal control [9]. Before control is established, a

cost-benefit analysis is required, so that the costs of

control do not exceed the benefits to be obtained

[16]. Hypothesis 3: Control activities have a

positive effect on internal control effectiveness

Information and communication systems

enable employees in an enterprise to capture and

exchange information necessary to perform,

manage, and control their activities and therefore

identify, capture and communicate that

information. inform the appropriate staff on a

timely basis

Hypothesis 4: Information and

communication have a positive influence on the

effectiveness of internal control

Monitoring is very important in the Internal

Control process [21]. Monitoring is an ongoing

activity that includes performing routine

procedures and reviewing documentation to

confirm that all procedures have been performed as

required. Monitoring can be used to know about the

effectiveness of internal control processes [25].

Hypothesis 5: Monitoring has a positive

effect on the effectiveness of internal control

Society is an aggregate of different interest

groups, the number of which is regulated and

limited. Group interest is one of the important

findings for consulting to come up with a

reasonable solution thereby improving the

effectiveness of the internal control system in the

competitive activities of the enterprise in the

coming time [25].

Hypothesis 6: Group interests hurt the

effectiveness of internal control

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1374

Volume 19, 2022

The competition requires companies to have

a competitive advantage to win the competition and

win markets and opportunities. It is anticipated that

the company will need to develop a competitive

strategy that focuses on core competencies in terms

of price, quality, flexibility, and delivery. improve

performance, can be achieved by adopting one of

the competitive strategies by firms, as

demonstrated by Porter (2004), who argues that if a

firm can achieve and maintain a competitive

advantage through improving competitiveness [3]

Hypothesis 7: Internal control system

effectiveness has a positive effect on

competitiveness.

Fig. 1: Research Model

4 Research Methodology

Based on the research scale of Olufemi, AA [17]

combined with Vu.HT [25] and Afriapollo S. [3],

the author builds a survey scale suitable for the

research model at the contest. The testing of the

proposed scales, models, and hypotheses is carried

out in the following steps: preliminary testing by

Cronbach's Alpha reliability coefficient,

exploratory factor analysis EFA and multivariate

regression. Data for quantitative research was

collected from the sample through 150 valid

questionnaires used as data for the study. Data was

entered, coded, and analyzed through SPSS 20.0

software.

5 Research Findings

5.1 Cronbach's Alpha Reliability Test

As mentioned above, before being put into

exploratory factor analysis, the research will test

the scale using Cronbach's Alpha tool of SPSS

software to test the reliability of the component

scales in the research model. After using the SPSS

processing scale and Cronbach's Alpha test, the

processing results are as follows:

After analyzing the reliability of the scales

with Cronbach's Alpha coefficient, the author

found that the scales used to measure the concepts

in the research model are all good scales (reliability

of all scales). all scales are greater than 0.6) and the

observed variables are eligible to be used for the

step of exploratory factor analysis (EFA) After

testing the scales, the satisfactory scales will be

performed with exploratory factor analysis with

The principal components extraction method and

Varimax rotation.

5.2 Exploratory factor analysis EFA

The table below shows the results of the Barlett test

with sig = 0.000 and KMO = 0.772 > 0.5,

indicating that factor analysis is appropriate.

Table 1. Result of Bartlett test and KMO index of

variables KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy.

.772

Bartlett's Test of

Sphericity

Approx. Chi-Square

5135.541

780

Sig.

.000

At the levels of eigenvalues > 1, factor analysis

has extracted 9 factors from 40 observed variables

with a total variance extracted of 73.672% (>50%)

satisfactory. After using Varimax rotation, the

results of the factor rotation matrix for the scales of

the variables show that the factor loading

coefficients of these variables are all greater than

0.5, which is satisfactory. Based on the results of

the factor rotation matrix table, the command to

group average variables is used to group the

satisfactory variables with factor loading > 0.5 into

8 factors.

5.3 Correlation Coefficient Matrix between

Variables in the Model

Pearson correlation coefficient matrix analysis to

examine the correlation between variables. The

results show that the correlation coefficient

between the factor Internal control effectiveness

(EI) and 6 independent variables CE, RA, TT, CA,

MO, and GI is relatively high and the Sig value is

Control

environment

Risk

assessment

Control

activities

Information

Communicatio

Monitoring

ICS

effectivenes

Group

interests

competitive

ness

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1375

Volume 19, 2022

small (< 0.05.) in the variables CE, RA, TT, CA.

Considering the factors that have been tested for

reliability and the factor of discovery, the author

decided to keep 4 variables CE, RA, TT, and CA

for further consideration in the multiple regression

section. Preliminary we can conclude that 4

independent variables CE, RA, TT, and CA can be

included in the model to explain the variable EI

(Type 2 variables MO, GI because sig is much

larger than 0.05, 0.574, and 0.574 respectively).

0.440 should not be statistically significant).

The results of the Pearson correlation

coefficient matrix show that the dependent variable

EI has a significant correlation with the 4

independent variables CE, RA, TT, and CA in the

research model. The correlation coefficient

between the dependent variable and the 4

independent variables CE, RA, TT, and CA is

greater than 0 and less than 0.7 (condition index

that the research concepts have achieved

discriminant value). Therefore, we can conclude

that 4 independent variables CE, RA, TT, and CA

have a positive correlation with the dependent

variable and are eligible to conduct multiple

regression analysis. In contrast, none of the

independent variables were negatively correlated

with the dependent variable.

In addition, the study shows that Internal

Control Effectiveness (EI) and Competitiveness

(CC) have sig = 0.000. This shows that there is a

positive correlation between Internal Control

Efficiency and Competitiveness, the specific

correlation coefficient is 0.097.

5.4 Confirmatory Factor Analysis CFA

Confirmatory factor analysis aims to confirm that

the measured model is consistent with the actual

data, to conclude CFA, the confirmatory measures

are used as follows:

Fig. 2: CFA Result

Table 2. The results of the CFA test of the actual fit

of the measurement model

THOUGHT

THOUGHTS _

Model

value

CONCLUSION

first

Chi-squared

significance level

(Cmin)

P-value > 0.05

0.0 00

The

measurement

model fits the

actual data.

Values of CFI,

TLI do not

reach >

0.90,and

academically, if

other measures

are met because

of the small

sample size

(150), the

smaller the

RMSEA index

the better, and

the model

needs to be

extended to

investigate.

Chi-squared adjusted

for degrees of

freedom (Cmin/df),

2/df 5

2,280

Comparative Fit

Index (CFI) CFI >

0.90; 0 < CFI < 1, the

closer to 1, the more

appropriate

0.726

Tucker-Lewis Index

(TLI)

TLI > 0.90

0.700

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1376

Volume 19, 2022

RMSEA (Root Mean

Square Error

Approximation)

index.

RMSEA < 0.05:

Model fits well;

RMSEA <0.08,

accept; Smaller :

Good stat.

0, 112

reduce the error

in the model

5.5 Analysis of Results Multivariate

Regression

Based on the results of correlation analysis and

multivariable regression analysis, the author

concludes that there are 2 factors affecting the

effectiveness of internal control, which are: Control

environment and risk assessment. In which, the

degree of influence of factors on the dependent

variable Internal control efficiency is in the

following order:

- Control environment factor with

normalization coefficient β=0.567. The

standardized beta coefficient of the Control

Environment factor has a positive sign, so it reflects

the positive relationship between the Control

Environment factor and Internal control

effectiveness.

- At the same time, the risk assessment

factor with the normalization coefficient β= 0.214.

The standardized beta coefficient of the risk

assessment factor also has a positive sign, so it

reflects the positive relationship between the risk

assessment factor and the effectiveness of internal

control.

In addition, the study shows that the

effectiveness of internal control and

competitiveness has sig = 0.000. This shows that

there is an extremely close relationship between

Internal Control Efficiency and Competitiveness.

Internal control effectiveness and Competitiveness

have a positive correlation. The correlation

coefficient is 0.097.

Through the regression results, we have the

following hypothesis testing results:

Table 3. Summary table of hypothesis testing

results

Hypothesis

Inspection

results

The control environment has

a positive influence on the

effectiveness of internal

control.

Risk assessment has a

positive influence on the

effectiveness of internal

control.

Control activities have a

positive influence on the

effectiveness of internal

control.

Does not

Information and

communication have a

positive influence on the

effectiveness of internal

control.

Does not

Effective internal control

has a positive influence on

competitiveness.

Based on the results of the regression

analysis on the impact of the factors on the

effectiveness of internal control, the author will

propose managerial implications to further improve

the effectiveness of internal control to enhance the

competitiveness of manufacturing enterprises.

6 Conclusions

The results when analyzing the factors of control

activities and assessing risks strongly affect the

effectiveness of the internal control system. Some

specific conclusions are as follows:

Firstly, the control environment is a factor that

strongly influences the effectiveness of internal

control.

Secondly, businesses are operating in an

extremely complex socio-economic environment,

with risks of epidemics, economic-political crises,

and supply chains disrupting production and

business activities, precisely because Therefore, the

risk assessment must be placed on top and carried

out throughout and continuously at enterprises.

Third, the effectiveness of internal control is to

show the impact (correlation) on competitiveness

from the perspective of leaders and members of the

enterprise. The improvement of the effectiveness of

the internal control system does not directly affect

the domination of the market but creates positive

changes in the perception of competitiveness of the

enterprise itself and its members.

Limitations of the study and directions for

further research

The study was conducted in a short time in

2021, along with limited economic potential, so the

restriction on sampling leads to a small sample size

compared to the size of the market in Binh Duong

province.

Regarding the research method, the small

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1377

Volume 19, 2022

sample size led to the confirmatory factor analysis

and the linear structure not reaching the

appropriateness of the research model with reality

(CFA results), leading to the failure to assess the

level of research. The impact of the effectiveness of

the internal control system on the competitiveness

of enterprises is also the director of the author's

next research with the expansion of the survey and

application of a stronger research model. To assess

the impact of operational efficiency on the

competitiveness of enterprises.

References:

[1] Alzeban, A., & Gwilliam, D. (2014). Factors

affecting the internal audit effectiveness: A

survey of the Saudi public sector. Journal of

International Accounting, Auditing and

Taxation, 23(2), 74-86.

[2] [2Amudo, A., & Inanga, E. L. (2009).

Evaluation of Internal Control Systems: A

Case Study from Uganda. International

Research Journal of Finance and Economics,

27(2009), 125-144.

[3] Ariapollo, S. (2014). The Influence of External

And Internal Environment on the Competitive

Strategy and the Partnership Strategy and Its

Impact on the Competitive Advantage and Its

Implication on the Performance of Small and

Medium Enterprises in West Sumatra.

[4] Badara, M. A. S., & Saidin, S. Z. (2013).

Impact of the effective internal control system

on the internal audit effectiveness at local

government level. Journal of Social and

Development Sciences, 4(1), 16-23

[5] Bader Mustafa, MA, & Zaher Abdel, FA-S.

(2019). The Effect of Internal Control on the

Competitive Advantage of the Bank.

International Journal of Business and

Management, 14 (9), 91.

https://doi.org/10.5539/ijbm.v14n9p91

[6] Buthayna, M., Rand Hani, A.-D., Bader Yousef,

O., & Ali, T. (2016). Examining the Effect of

the Organization's Internal Control System on

Organizational Effectiveness: A Jordanian

Empirical Study. International Journal of

Business Administration 7 (6), 22–41.

https://doi.org/10.5430/ijba.v7n6p22

[7] COSO. (2012). Internal Control-Integrated

Framework. Committee of Sponsoring

Organization of The Treadway Commission.

[8] Dinh, TH, & Tran, TT (2019). Factors affecting

the effectiveness of internal control in joint-

stock commercial banks in Vietnam.

Management Science Letters 9 (11), 1799–

1812. https://doi.org/10.5267/j.msl.2019.6.011

[9] Elvir Munirovich, A., Vasilev, VL, Mironov,

DS, Zatsarinnaya, Е. I., Romanova, MV, &

Yumashev, AV (2018). The internal control

system in enterprise management: Analysis

and interaction matrices. European Research

Studies Journal, 21 (2), 728–740.

[10] Fama, E., & Jensen, MC (1983). Separation of

Ownership and Control. The Journal of Law

and Economics.

https://www.journals.uchicago.edu/doi/epdf/1

0.1086/467037

[11] Ha, NTT (2019). The solution is to complete

the internal control system at Vietnam

National Shipping Lines. Vietnam Maritime

University.

[12] Jensen, MC, & Meckling, WH (1976). Theory

of the firm: Managerial behavior, agency co,

sts, and ownership structure. Journal of

Financial Economics, 3 (4), 305–360.

https://doi.org/10.1016/0304-405X(76)90026-

[13] Nga, HT, & Ly, NNT (2020). Factors affecting

internal control of credit activities of

commercial banks in Ho Chi Minh City.

Industry and Trade Magazine

https://tapchicongthuong.vn/bai-viet/cac-

nhan-to-anh-huong-den-kiem-soat-noi-bo-

hoat-dong-tin-dung-cac-ngan-hang-thuong-

mai- thanh-pho-ho-chi-minh-

68196.htm#:~:text=Research results for,5)

Monitoring activities.

[14] Nguyen, TT (2019). Internal control towards

risk management in enterprises. Financial

Magazine https://tapchitaichinh.vn/tai-chinh-

king-doanh/kiem-soat-noi-bo-huong-toi-quan-

tri-rui-ro-trong-cac-doanh-nghiep-

302530.html

[15] Nguyen, TT, & Bui, TN (2018). Solutions to

Strengthen the Internal Control System in

Paper Manufacturing Enterprises. In Journal

of Advances in Economics and Finance (Vol.

3, Issue 3).

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1378

Volume 19, 2022

https://doi.org/10.22606/jaef.2018.33002

[16] Oksana, A., & Nadezhda, A. (2015). The main

elements of the internal control system. The

european cooperation, 6 (6), 94–104.

[17] Olufemi, AA (2018). Determinants of Internal

Control Effectiveness among Selected Small

and Medium Enterprises in Lagos Metropolis.

The International Journal of Business &

Management, 6 (6), 73–82.

https://www.researchgate.net/publication/3263

00705_Determinants_of_Internal_Control_Eff

ectiveness_among_Selected_Small_and_Medi

um_Enterprises_in_Lagos_Metropolis%0Ahtt

ps://www.academia.edu/39272194/Determina

nts_of_Internal_Control_Ef

[18] Phornlaphatrachakorn, K., & Kalasindhu, K.

N. (2020). Internal Control Effectiveness and

Business Survival: Evidence from Thai Food

Businesses. Journal of Asian Finance,

Economics and Business, 7(12), 927-939

[19] Phu et al (2020). Factors Affecting the

Competitiveness of VietNam Aquatic

Exporters: Empirical Evidence in an Giang

Province. WSEAS Transactions on Business

and Economics, 17, 397-409.

[21] Phung, VT (2016). The impact of factors

constituting the internal control system on the

performance of Vietnam Electricity.

University of Economics Ho Chi Minh city.

[21] Shabri, S. M., Saad, R. A. J. & Bakar, A. A.

(2016). The Effects of Internal Control

Systems on Cooperative’s Profi tability: A

Case of Koperasi ABC Berhad. International

Review of Management and Marketing, 6 (8),

240-245. Retrieved from

https://dergipark.org.tr/en/pub/irmm/issue/321

03/355775

[22] Shaman, R. B., & Senan, N. (2019). A Study

on Effectiveness of Internal Control System in

Selected Banks in Saudi Arabia. Asian

Journal of Managerial Science, 8(1), 41-47

[23] Toan et al (2020). Research on Factors

Affecting to Customers’ Intention to Online

Shopping: Empirical Evidence in Vietnam

Emerging Economy. WSEAS Transactions on

Business and Economics, 17.

[24] Toan et al (2021). Toward a Model for the

Acceptance of Internet Banking in an

Emerging Market. WSEAS Transactions on

Environment and Development, 17 (33), 322-

341.

[25] Vu, HT (2016). The Research of Factors

Affecting the Effectiveness of Internal Control

Systems in Commercial Banks-empirical

Evidence in Vietnam. International Business

Research, 9(7), 144-153.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.e

n_US

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.123

Nguyen Vuong Thanh Long, Nguyen Huu Phu,

Vo Van Nhi, Le Duc Toan, Nguyen Phi Son

E-ISSN: 2224-2899

1379

Volume 19, 2022