MANAGING IMPLEMENTATION OF INTERNAL CONTROL SYSTEM

WITHIN NATIONAL BANK OF

Central banks need to protect their role of ensuring the stability of national economies and
monetary policies. This ability depends on the existence of proper processes of internal control,
financial reporting and auditing systems. Like other financial institutions, National Bank of
Moldova is exposed to a number of risks. Internal control systems are seen as the major tool for
managing risk The IMF found many central banks to be lacking certain key elements needed for
effective internal control.
In this context, and in order to stay competitive in the field of risk management, International
Monetary Fund and external auditor suggested the National Bank of Moldova to implement the
internal control system.
As C. Smith mentioned (4) “change starts with a goal” and the NBM’s goal was to develop
adequate management for potential arising risks and follow up international standards in the
areas of internal control, financial reporting and auditing systems. The experience has shown that
the central banks, which follow international standards in these areas, have more control over
their resources, greater credibility, and a more positive influence on their national economy.
Managing this change, required at least three things: management commitment, universal
approval, and appropriate measures and rewards.
Management Commitment. In order for implement ICS within NBM, executives and managers
should be consistently committed to making it happen. Only leaders can ensure that resources
necessary to effect the change are available. Consistent commitment means that the change
becomes both an enterprise strategy and an enterprise goal that leaders continuously and
obviously support. The visibility of leadership support was a primary factor in achieving
universal approval for above-mentioned change.
Universal Approval Internal change could be successful only when the people involved approve
of the change, they understand the need for the change, they believe the change is good for the
enterprise and good for them, they agree that the change being undertaken is the right change.
Measures and Rewards Getting everyone to want change is difficult. It requires a level and
degree of communication and cooperation not found in most enterprises. Maintaining universal
approval is even more difficult. The best way to get and maintain universal approval is to ensure
that the process and results of change are measured appropriately and accurately and
communicated enterprise-wide. Good results and changed behaviour must be rewarded. At the
same time, unchanged behaviour and poor results should not be rewarded. We understood that
employees would not work toward change if they continue to be rewarded for old practices.
Managing successful ICS implementation required an understanding of the process of change
including the fact that: it is a long process – a minimum of three years; it is made up of different
stages; and that different types of activity are needed at different stages in the process. Managing
change within NBM occurred in our opinion in three broad stages.
The first stage was a planning stage, when NBM, at the IMF requirement, decided on costs,
human resources and management of internal control system (ICS) implementation. We consider
important to mention that NBM did not feel from the beginning the need for ICS implementation
and this change was “thrust” by external environment factors – requirement of the involved
organizations. At that stage internal audit department was appointed for ICS implementation
management and all powers for successful process developing where designated to IAD staff. An
important step was development of the action plan, which included all measures to be taken and
their timetable.
The second stage involved implementation, management and maintaining of the change process.
IAD staff had to organize a lot of meetings and seminars with NBM departments in order to
explain as clear as possible the measures to be taken during the change process, prepared reports
with recommendations on developed by departments of the internal control procedures,
cooperated with external experts on most adverse issues in order to test the implemented
features, etc.
The last stage, which is developing now, consists of continuous tracking and monitoring of the
ICS implementation process. IAD staff is required to analyze permanently the functioning the
internal control procedures, to update them if necessary and to cooperate with departments on
these issues. The IAD team is willing to listen and monitor constantly, to ensure adjustments
are made with the goal of risk control in mind. However, instead of the IAD staff’s efforts to
manage the process, the ICS implementation could be considered by some employees as not so
important like day-to-day activity. In order to manage this situation and to become appropriately
adaptive to change, as Charles Darwin stated “it is not the strongest of species that survives, nor
the most intelligent, it is the one that is most adaptable to change”, we consider critical the
importance of continuous training and development of the NBM staff, human resources
department having a pivotal role to the success of the change process.
Primarily this change was jeopardized by several factors. As Puccinelli (3) mentioned, “Fear is
the primary obstacle to embracing change”. Carson (Carson (1999) Organizational change and
strategies for turbulent environments. Journal of Modern Business) underlined that could be
considered as factors of resistance to change the following “fear of failure, loss of status or job
security…” Resistance generated by these factors was observed during the implementation of the
above-mentioned change in the NBM also, because at the initial stage both middle management
and personnel were not sure about their responsibilities and duties during and after internal
control system (ICS) implementation. Additionally some skepticism could be assessed about
importance and necessity of this change. In order to combat this resistance NBM’s management
had to introduce and manage very carefully this process.
People are the sine qua non of organization. Moreover, they come characterized by all manner of
sizes, shapes, colors, intelligence and ability levels, gender, sexual preferences, first and second
languages, attitudes toward life and work, personalities, and priorities — and these are just a few
of the dimensions along which people vary. We had to deal with them all. Considering internal
control implementation it should be mentioned that although employees were lead into this
process as a group, each member was treated as much as possible as an individual, considering
the fact that one approach could not fit all staff abilities and creativeness. The skills most needed
in this area where those that typically fall under the heading of communication or interpersonal
skills. To be effective, we had to be able to listen and listen actively, to restate, to reflect, to
clarify without interrogating, to draw out the speaker, to lead or channel a discussion, to plant
ideas, and to develop them.
Concerning the heavy dependence of individuals, the continual process of balancing the
motivation of individual employees and overall corporate direction occurred. For example trying
to establish collective intention as the driving force behind all activities. De Geus 1997 pleads
that for assessing corporate health in the knowledge economy, new measures are required,
integrating all forms of tangible and intangible capital.
At the same time, internal audit department (IAD), being the responsible body for internal
control system implementation, addressed NMB staff’s rumors and fear by sharing verifiable
information as quickly as it became available and explained why change is necessary at every
opportunity. In this context a very important issue is considered to be the fact that internal
control system implementation was accompanied by the De Nederlandske Bank’s assistance,
which delivers technical assistance in this field since now.
An important success factor for this change within NBM is considered the fact that IAD’s staff
was able to listen attentively each employee, show respect for their opinion and try to help
anytime when was adequate. In such a manner IAD facilitated communication of a clear
understanding of the goals and objectives of the ICS implementation.
As was mentioned before, the change management team itself was identified as a contributor to
success. The skills, expertise, experience and commitment of the IAD staff were critical both at
the process’s start and during its ulterior implementation. Additionally, top management tends
every time that an effective leader and motivator lead the division.

From observation of the change process in National Bank of Moldova, we were able to extract
some lessons, maybe needed to be learned by other organizations. These are as follows:
- Work With the Group
A senior manager has to work with the "natural ingredients" at hand, which requires careful
study of the history of the group, and gives many clues to members' behavior. Ignorance of or
purposely ignoring the natural order of a group may doom a change strategy to failure.
- Confront Fear of Change
Asking people to make significant behavioral changes is the most frightening request one can
make of them. Stress levels in organizations and people are directly linked to the level of change
experienced. Underestimating their fear response and potential resistance is the most consistent
mistake made by leaders when introducing change.
- Build Trust
If the doors to change are not open, then interventions must concentrate on teambuilding, trust
building, and open/honest communications, prior to the introduction of change. Authentic
participation in the change process, with many opportunities to raise issues of concern, will help
keep a group open to the possibility of significant change.
- Avoid Manipulating the Workgroup
The worst change strategy is for a leader to pretend to listen to the work group and consider their
concerns, having already decided what is appropriate in advance. This type of approach will
backfire, because people will quickly perceive that they are being manipulated and conclude that
the process is dishonest.
- Be Willing to Compromise
If senior management focuses on predetermined outcomes and displays unwillingness to
compromise, the possibility of work group support is minimized. Involved employees will
suggest changes that greatly improve the original plan, because the people most heavily affected
by a plan will correct its obvious defects. Employees are much more likely to support a new set
of ideas which they have had a key role in shaping.
- Actions vs. Words
People trust their leaders' actions, not their words. If words and actions are consistent, then a
manager's credibility will be high.
- Integrity - the Most Important Variable
The most critical variable in the change process is a leader's personal integrity: Does the work
group have good reason to trust the leader? Do the leader's actions and words match? Is he/she
sensitive to work group needs? Does he/she treat group members as he/she would like to be
treated? Does the leader communicate with the work group in an open and honest manner?

1. Carson (1999) Organizational change and strategies for turbulent environments. Journal of
Modern Business
2. J.L.C. Kemp (2001) On the nature of knowledge-intensive Organizations: Strategy and
Organization in the new economy. 7th International Conference on Concurrent Enterprising 27-
29 June, Bremen.
3. Puccinelli Bob (1998) Overcoming resistance to change. Inform, 12 (8)
4. Smith Catherine (1998) The alchemy of change. Banker