"Gyeonggi-do Local Currency Management Agency Embezzles Advance Payments, Invests KRW 226.1 Billion in Bonds Annually"

Audit Board Announces Regular Audit of Gyeonggi Province
North Korea-related Business Operator Embezzled 426 Million KRW in Subsidies
Controversy Expected During Governor Lee Jae-myung's Term

According to the Board of Audit and Inspection, the agency operating the Gyeonggi local currency, commissioned by Gyeonggi Province, used the local currency advance payments for bond investments and subsidiary company capital contributions without prior approval or reporting, but Gyeonggi Province was aware of this and neglected to take action. Over three years, this operating agency invested an average of approximately 226.1 billion KRW annually of the Gyeonggi local currency advance payments in corporate bonds and other instruments, reportedly earning at least 2.6 billion KRW in operational profits. Notably, the audit period coincides with the time when Lee Jae-myung, leader of the Democratic Party of Korea, served as governor of Gyeonggi Province, suggesting the issue may reignite political debates.

According to the audit, in January 2019, Gyeonggi Province signed an agreement with the local currency operator 'Kona I' to entrust the issuance and operation of the Gyeonggi local currency, including management of advance payments. However, the operating agency transferred 4 billion KRW from the Gyeonggi local currency advance payment account to its own account and on the same day transferred the same amount to an investment account. From May 22, 2019, to November 30, 2021, the company managed the local currency advance payments by investing in various bonds, including purchasing corporate bonds of Company A Heavy Industries.

Furthermore, in May 2020, the company transferred 10 billion KRW from the local currency advance payment account to its intermediate fund management account to participate in a paid-in capital increase aimed at expanding the business scope of a subsidiary, subsequently using the funds to acquire shares. The audit revealed that although Gyeonggi Province became aware of the company's bond investment activities from October 2020, it neglected to conduct a thorough legal review and arbitrarily assumed that the financial supervisory authorities would oversee the matter, thus leaving it unaddressed.

The Board of Audit and Inspection stated, "We notified the Gyeonggi Province governor and others to verify whether the balances transferred to cities and counties were accurate and to take appropriate measures according to the joint operation agency agreement. We requested disciplinary action against two individuals responsible for neglecting management and supervision of the Gyeonggi local currency operating agency and improperly handling the management and supervision of local currency funds."

Additionally, the audit uncovered that after selecting the Nambuk Economic Cooperation Research Institute, a corporation, as a subsidy recipient for the inter-Korean exchange cooperation project (livestock infectious diseases and COVID-19 projects), Gyeonggi Province provided subsidies totaling 1.291 billion KRW. However, 5.83 million KRW of the subsidy was used for purposes other than the project, and 426 million KRW was embezzled. The Board of Audit and Inspection notified the Gyeonggi Province governor to recover 426.57 million KRW in local subsidies from the Nambuk Economic Cooperation Research Institute for misusing funds and failing to submit supporting documents, to establish measures to restrict subsidy grants for up to five years, and requested prosecution to investigate the institute’s representative.

The audit period covers 2018 to 2022, overlapping with Lee Jae-myung’s tenure as governor of Gyeonggi Province (July 2018 to October 2021).

[Image source=Yonhap News]