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Audit Report

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RMIT University Vietnam Corporate Governance and Regulations (BUSM 4158)

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Individual Social Audit Report on Vedan Vietnam’s Corporate Social Responsibility

Prepared by: Nguyen Ngoc Thanh Phuong Student ID: s3480053 Lecturer: Mr. Barry Slutsky Semester 1, 2014 Word count: 1762

Corporate Governance & Regulations -­‐ BUSM 4158

Table of Contents Executive summary ..................................................................................................... 3 Vedan Vietnam and Thi Vai river incident .................................................................... 3 1. Vedan Vietnam – Company in brief: ......................................................................................................... 4 2. Thi Vai river incident ....................................................................................................................................... 4

Vedan’s social and environmental impact ................................................................... 4 1. Environmental impact .................................................................................................................................... 4 2. Social impact ....................................................................................................................................................... 5 2.1 Vedan’s action impacts on local resident’s health: .......................................................................... 5 2.2 Vedan’s action impacts on farmland ..................................................................................................... 5 3. Vedan’s stakeholders reaction .................................................................................................................... 6 3.1 Reaction from Government: ....................................................................................................................... 6 3.2 Reaction from local residents .................................................................................................................... 6 3.3 Financial damages ......................................................................................................................................... 7

Vedan’s Corporate Social Responsibility (CSR) ............................................................. 7 1. Lesson learnt from Thi Vai river incident .............................................................................................. 7 2. Vedan’s current engagement in CSR ......................................................................................................... 8 2.1 Vedan’s CSR activities ....................................................................................................................................... 8 2.2 Vedan’s social reporting .................................................................................................................................. 8

Recommendation ........................................................................................................ 9 References ................................................................................................................. 10

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Executive summary Ethics and Corporate Social Responsibility (CSR) have been always brought up to argue the role of profit and this debate may never end. Regardless, CSR has become one important component of business strategy to develop a sustainable success. However, not all company realize the essential role of CSR, Vedan Vienam is a typical example. The purpose of this paper is conducting a social audit on the social and environmental impact of Vedan Vietnam. Annual report, online magazine, company’s website and literature are used to support the auditing. In 2008, Vedan Vietnam was caught in discharging untreated sewage into Thi Vai River, which will be briefly summarized in the first part of this paper. The 12 km long river section of Thi Vai has been heavily polluted as well as surrounded area. Local residents’ health and farmland were badly impacted. The impact of this action on environment and social will be then audited in the second part. Company’s stakeholders are also taken into consideration and what they have reacted upon this incident. Vedan has to be responsible for their action by paying fines to the Government, compensation to local residents and the cost of restoring Thi Vai River. Thirdly, the paper will audit what Vedan has learnt from the mistake and its current engagement in CSR activities and social reporting. Finally, recommendation is provided for Vedan to improve its social and environmental responsibility.

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Corporate Governance & Regulations -­‐ BUSM 4158

Vedan Vietnam and Thi Vai river incident 1. Vedan Vietnam – Company in brief: Vedan Enterprise Corporation was established in 1954 in Taiwan. In order to accelerate market expansion, the company established Vedan Vietnam in 1991 as its major production base (Corporate Profile, 2014). The plant is located on the Southeast of Ho Chi Minh City, in Dong Nai Province. Company’s products include fermentation-­‐based amino acids, food additive products, cassava starch-­‐based industrial products, beverage and specialty chemical products.

2. Thi Vai river incident Vedan’s plant was built next to Thi Vai River and the river happened to change its color in 1995 since Vedan started its operation. Shrimps and fish were killed by the polluted river and the company had to pay a compensation of total VND 15 billions to local farmers (Tuoi Tre Online, 2008). According to Vietnam Environment Administration’s inspection in 2006, the result showed that most samples which taken from Vedan’s sewage all had parameters of organic pollution, nutrients and bacteria exceed standards. After continuous investigation, Vedan finally got caught in the act of discharging untreated sewage into Thi Vai River in September 2008, which not only had a strong impact on the river itself but also the communities around it.

Vedan’s social and environmental impact 1. Environmental impact Environmental contamination due to industrial production activities in general and industrial zone in particular has been always an ongoing topic and need to be addressed. What Vedan has done clearly had a bad impact on natural ecosystem. According to Vietnam Environment Administration’s report, the 12 km long river section of Thi vai has been heavily polluted. In this section, aquatic species such as shrip, fish can almost not exist nor grow (VEA, 2006).

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Discharging untreated sewage into Thi Vai River has a direct negative impact on the environment and also causes significant damage to agriculture production and aquaculture in neighboring areas. The pollution in Thi Vai River has leaded to long-­‐term consequence not only of the river itself but also the surrounded environment. It’s more difficult to abate groundwater pollution than surface’s pollution, as groundwater is able to move further through unseen aquifers. Most water pollutants cannot stay in Thi Vai forever; they are eventually carried from the rivers into the oceans. Therefore, its negative effects are not only as above, they may spread lager and finally unable to compute all damages.

2. Social impact 2.1 Vedan’s action impacts on local resident’s health: Environmental contamination does not only have negative impact on the environment itself, but also increase illness burden, increase the percentage of ill people in that industrial zone and local residential communities who live nearby. One of Vedan’s important stakeholders is local resident of Dong Nai Province. While Thi Vai River is the main domestic water supply source, its pollution had a serious influence on local residents’ health. Indeed, the groundwater’s contamination by Vedan’s sewage leaded to the pollution in soil, water, and air of surrounding areas fore many years. Many wells in the area are foul and unusable due to the contamination of groundwater caused by Vedan’s action. Local residents’ health is directly impacted, causing illness such as skin rashes, respiratory diseases and headaches. These consequences not only last for several years, within a certain group of people but also affect their next generation for many years after. 2.2 Vedan’s action impacts on farmland Thi Vai River was carrying pollutants from Vedan’s sewage while this river is also the main source of water supply for agriculture and aquaculture actives in Dong Nai Province. Thus, the pollution caused huge losses to the farmers who depend on fishing, breeding aquatic creatures and building dams for their livelihood. According to the report of Vietnam Environmental Administration, a total agricultural area of 1438.5 hectares are damaged, most are aquaculture ponds and 29.5 hectares of land is agricultural production (VEA, 2009). Since 2005, due to impact of untreated sewage and emission from Vedan’s factory, Phuong Nguyen -­‐ S3480053 5

Corporate Governance & Regulations -­‐ BUSM 4158

production of local farmers declined in both quantity and quality. A farmer from Phuoc Binh Commune said he had lost total of VND 250 millions in the harvest of 2008. The pollution was killing all aquatic creatures and leading farmers to the brink of bankruptcy. According to Mr. Nguyen Van Phung, Deputy Chairman of Ho Chi Minh Farmers’s association, the number of household involved in aquaculture felt drastically from 500 to 170 households, as a result of Vedan’s action.

3. Vedan’s stakeholders reaction Stakeholder is defined as any group or individual who can affect or is affected by the achievement of organizational objectives (Friedman, 2002). Environment, local residents, regulations, governments are Vedan’s major stakeholders in this particular case. The impact of Vedan’s action upon their stakeholders is clearly indicated such as causing environmental contamination, impact on local residents’ health and wealth, which were illustrated above. By the action of discharging untreated sewage into Thi Vai River, Vedan also had to bear for the impact of stakeholders upon the company. 3.1 Reaction from Government: Vedan’s Vietnam has gone against Decree 183 of Vietnam Penal Code 1999 by continuing cause water pollution. According to Tuoi Tre Online, The Government asked the authority of the southern province of Đồng Nai to cooperate with the Ministry of Natural Resources and Environment (MONRE) and the Ministry of Public Security to strictly implement two decisions, namely Decision 1999/QĐ-­‐BTNMT on October 6, 2008 on suspending Vedan’s license to discharge its sewage into water sources and Decision 131/QĐ-­‐XPHC on the same day to impose administrative penalty against Vedan’s law infringement (Tuoi Tre Online, 2008) 3.2 Reaction from local residents Discharging untreated sewage into Thi Vai River directly has the impact on local residents’ health and wealth. For this action, Vedan had to cope with over 10,000 letters demanding legal action. The company is required to send to court by violating environmental protection laws. Besides compensation, local residents also demanded that Vedan’s action must be

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penalized resolutely and strictly through proper steps to ensure this illegal deed is completely ended. 3.3 Financial damages Vedan has to be responsible for their action by paying fines to the Government, compensation to local residents and the cost of restoring Thi Vai River. According to The Saigon Times, The Ministry of Natural Resources and Environment demanded Vedan to pay the fine of VND 267.5 millions for violating environmental protection plus VND 127 billions fees for environmental protection of industrial sewage. In addition, VND 569 billions were being asked by the HCMC Farmers’ Association as financial support to farmers who were affected by the Thi Vai River’s pollution (The Saigon Times, 2008). On the other hand, Vedan is also requested to construct a sewage treatment system to minimize the environmental contamination. Thi Vai incident badly impacted on Vedan’s reputation and profit. All social organization, newspaper, and the consumers decided to boycott all product of Vedan. With all of the impacts from stakeholders, Vedan recorded a total lost of 50% net profit in 2008 (Vedan Fiscal 2008 Annual Report).

Vedan’s Corporate Social Responsibility (CSR) 1. Lesson learnt from Thi Vai river incident From Thi Vai River Incidents, Vedan Vietnam clearly did not fulfill the economic, legal, ethical and philanthropic responsibilities expected of it by its stakeholders. From a firm’s perspective, Vedan’s vision is to be Asia’s leading manufacturer of fermentation (Corporate Profile, 2014). Increasing profit is viewed as the company’s main mission by their illegal and unethical action of cutting down the cost of discharging wastewater process regardless of the consequences. Social and environmental concerns were nowhere considered as parts of Vedan’s mission. Vedan’s General Director Yan Kun Hsiang even initially argued and rejected the accusation until obvious evidence was found. Moreover, Vedan has shown its low social responsibilities and corporate ethics by prolonging the case and gave invalid reasons to bargain the compensation amount.

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2. Vedan’s current engagement in CSR Ethics, CSR, have been always brought up to argue the role of profit and this debate may never end. Some firms consider CRS is a marketing tool to build up their positive image while some firms indeed concern CSR is part of company’s vision. Regardless, the role of CRS is more taken into consideration by Vedan after the consequences of Thi Vai River incident. Learning from mistake, Vedan is determined to not only meet the legal requirements on environmental protection in Vietnam, but also excel those requirements and become a green manufacturer. 2.1 Vedan’s CSR activities Aiming at the long-­‐term business in Vietnam, by the end of 2009, Vedan has taken initial step to establish their policy of environmental management system based on the standard of ISO 14001-­‐2004. The purpose of this management system is to orient and train each individual employee the concept of protecting environment and obey all legal regulations. In addition, since September 2009, Vedan Vietnam has strictly conducted the classification of sewage (recoverable and unrecoverable sewages) to each department, unit in the company and obtained good results (Vedan Sustainable Business, 2009). Vedan has realized that protecting environment is the core element contributing to long-­‐term development. After Thi Vai River incident, brand repositioning is probably the most challenging mission that Vedan needs to address. Vedan Vietnam has put together their best effort to gain back accreditation and rebuilt trust from local residents as well as its consumers. Since 2009 until now, Vedan has continuously engaged in CSR activities such as offering houses to poor households in Dong Nai Province, donating over VND 350 millions to Dong Nai’s Children Fund, giving gift to poor families every Lunar New Year, sponsoring scholarship for poor student, etc. (Vedan Sustainable Business). These CSR activities are integrated with Vedan’s main business concern, which is developing long-­‐term business in Vietnam 2.2 Vedan’s social reporting A proper process of communicating the social and environmental effects of Vedan organization however has not been established yet. In another way, Vedan Vietnam is not yet engaging in social report. The company is currently communicating its relevant information regarding CSR’s approach and activities only via the official web page. Phuong Nguyen -­‐ S3480053 8

Corporate Governance & Regulations -­‐ BUSM 4158

Information is listed but not documented and presented in a standardized social reporting format. Although understanding that Vedan has tried to put all their CRS activities in action, engaging in social reporting, following international standard will help the company keep track and monitors properly its CSR activities as well as better communicate them to the company’s stakeholders.

Recommendation As social responsibility now becomes an integral part of the wealth creation process, which if managed properly should enhance the competitiveness of business and maximize the value of wealth creation to society. Thi Vai River incident left a stain on Vedan’s reputation, which requires company a lot of time to recover. One of the critical tasks that Vedan Vietnam truly needs to work on is improving its social and environmental responsibility. In order to do so, the company must first understand and ensure associating CSR with the company’s strategy. In addition, building and promoting CSR through social media is a great tool in this modern society. It’s also easier for the company to approach its stakeholders and listen to their need. More and more CSR campaigns have gone virally on the Internet and obtained a great result. Social media is now considered as a perfect way of communicating information. Last but not least, Vedan is also required to engage in social reporting based on international standard to ensure its active compliance with the spirit of the law ethical and international norms.

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References • • Friedman, M. (2002). Capitalism and Freedom. Chicago: University of Chicago Press. Psaros, J. (2009). Australian Corporate Governance: A review and analysis of key issues. 1st ed. Prentice Hall. • Thesaigontimes.vn, (2008). Vedan license suspended, fines VND 127 billions. Viewed Apr 25,20014 < http://www.thesaigontimes.vn/Home/thoisu/doisong/10687/Xu-­‐ly-­‐Vedan-­‐ Tam-­‐dinh-­‐chi-­‐hoat-­‐dong-­‐nop-­‐127-­‐ti-­‐dong.html> • Tuoitre.vn, (2008). Vedan killed Thi Vai River. Viewed Apr 25, 2014 < http://tuoitre.vn/Chinh-­‐tri-­‐Xa-­‐hoi/278294/Vedan-­‐“giet”-­‐song-­‐Thi-­‐Vai.html#ad-­‐image-­‐0> • VEDAN International (Holdings) Limited, (2008). 2008 Interim Report (Full version). Viewed Apr 25, 2014 • Vedan.com.vn, (2014). Sustainable Business | Vedan Website. Viewed Apr 25, 2014 • Vedan.com.vn, (2014). Sustainable Business > Safety – Health – Environment | Vedan Website. Viewed Apr 25, 2014

• Vedaninternational.com, (2006). VEDAN International (Holdings) Limited. Viewed Apr 25, 2014 • Vietnam Environment Administration, (2009). Impact of Industrial Pollution. Viewed Apr 25, 2014

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...a)The purpose and use of the different accounting records which can be used in MonteHodge: Accounting is a crucial discipline for keeping track of quantifiable factors for a business or individual. Accountants are primarily employed to track the flow of money through an organization. In some cases, they are charged with ensuring legal compliance. In others, they are more specialized in optimizing that cash flow. Accountants also organize and aggregate financial information and produce reports for people less experienced in the discipline. (Source: Purpose of Accounting | eHow.comhttp://www.ehow.com/about_4679149_purpose-accounting_.html#ixzz22YwT2kpu ) The accounting system for your business consists of several types of records. Although there are many types of underlying financial records, such as invoices, journals, and receipts, the major accounting records are types of financial statements that summate the financial status of a business. Each type of accounting record details certain information about your business, and each is used for a different purpose, but each type is also linked to another record in your set of financial statements. Although modern accounting software creates these statements automatically based on transactions you enter, it’s still important to understand how each type of accounting record is used. Income Statement The income statement lists all your business income and expense transactions. It is also known as a profit and loss......

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Audit Committee Report

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