Several State-owned enterprises (SOEs) used State-allocated funds instead of company budgets to hand out large payments to their top employees while claiming losses.

Dr. Nguyen Huu Dung said that several SOEs claim big profits while seeking approval for salary plans but bemoan huge losses when seeking the Government funding 

Dr. Nguyen Huu Dung, former Director of the Institute of Labour Science and Social Affairs (ILSSA), spoke about the situation in an interview with DTiNews.

The State-owned Electricity of Vietnam Group (EVN) has recently stirred up controversy when it payed certain employees extravagant salaries while, at the same time, claiming to be taking huge loses. What do you think about this?

In this case, it’s obvious that the majority of EVN’s capital source comes from the Government. EVN, as well other state-owned enterprises, are given funds to conduct business. These firms often operate in sectors with a lot of competition, such as the energy generation market, oil, gas and coal. They currently hold monopolies in their areas.

However, there has been a lack of any mechanism that can effectively regulate the separation between the use of State and corporate funds, or assess the efficiency of State investments. This has led to a situation where these corporations can misuse Government funds. So many have used State money to compensate their employees.

So you would say that insufficient policy is to blame?

The lack of policies and supervision for capital use and efficiency is the cause. Currently, the Government just pays attention to a few things, such as fund allocations, and salaries packages. This means that salaries remain the same whether the company makes a profit or not. If salaries were based on the companies profits, they would not be able to maintain these levels.

These enterprises often misrepresent their losses, claiming losses from their core areas, while making profits on other investments in order to be further subsidised by the Government. This is done through questionable accounting practices.

These enterprises often justify extremely high salaries, despite 'huge losses', by saying that they have been approved by the Ministry of Labour, Invalid and Social Affairs (MoLISA) and the Ministry of Finance. What do you think about this?

That is exactly the problem.

Does this inadequacy result in an “asking-giving” mechanism in which enterprises seek the MoLISA’s approval for salary packages and the ministry approves them without proper oversight?

It’s challenging for us to work out a mechanism that can separate sources of corporate capital. Currently we focus on salary payment, instead of an overall management scheme should be developed which deals with all business operations.

Could you please give some details about the Ministry of Home Affairs’ plan for salary renovation for SOEs for the 2013-2020 period?

The salary renovation plan for SOEs will encompass the supervision of all business operations, including scrutiny of all profits and returns.

It’s important that salaries reflect a company's profits. Moreover, an enterprise's business results can only be possible with policy that will foster transparency in accounting.

How can we supervise these enterprises’ business operations in order to prevent cases similar to EVN? EVN’s employees’ real salaries were made public only after the MoLISA conducted an audit. If an EVN officials hadn’t complained that their employee salaries were becoming an unbearable burden, averaging VND7.3 million (USD347.2) per month, no one would have found out that the actual average salary was VND13.7 million (USD651.7) per month in 2010.

There are several ways to regulate these companies' business operations, but key lies in accounting methods. This is the responsibility of the Ministry of Finance, which must ensure that financial reports are honest, accurate and carefully audited. The auditing process is a way to decipher the actual position of enterprises.

The Government can use various tax tools to monitor these companies. Natural resource taxes should be applied to businesses that operate in sectors with advantages over competition, such as coal and oil and gas. For the electricity industry, the Government allocates capital for the construction of infrastructure. They must also apply prices that accurately balance demand and profit.

Clear tax and financial codes are needed to make sure salaries are calculated based on profits.