Accounting fraud

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Opinion

Mon, May 29, 2017 | 09:16

Editorial

Accounting fraud

Posted : 2012-01-12 17:00

Updated : 2012-01-12 17:00

Municipalities should not waste taxpayer money

Municipal authorities have gone too far in their budgetary mess. Some of them even manipulated financial statements in a bid to look as if they had enjoyed a fiscal surplus. This accounting fraud unquestionably constitutes a grave crime that should not and cannot be condoned. It not only brings huge losses to taxpayers but also threatens the survival of local autonomy.

The Board of Audit and Inspection (BAI) unveiled its probe into 49 local administrations on Tuesday, saying that it has found three municipal governments engaging in accounting fraud. The finding was shocking. It confirmed widespread allegations about the illegal practice.

According to the BAI, Hwaseong in Gyeonggi Province suffered a budget deficit of 32 billion won ($28 million) in 2009 and 92 billion won in 2010. However, it falsely reported to the city council that it enjoyed a surplus. Incheon Metropolitan City, just west of Seoul, also doctored the books to report 23 billion won in surplus between 2007 and 2010 although it actually posted 916 billion won in loss. Cheonan, South Chungcheong Province, did the same thing to hide a shortfall of 107 billion won for five years from 2006.

Why did the municipalities commit accounting fraud? The reason is that their mayors had recklessly pushed pork-barrel projects. They tried to keep their populism-oriented campaign promises to build light railroads, pave highways, or set up free trade zones without considering their feasibility or financial capacity. Such projects have become white elephants, increasing the financial burdens of taxpayers.

No one can forget the case of Seongnam City, just south of Seoul, which declared a moratorium on debt payment in July 2010. The city, once slammed for the construction of a luxury municipal building, plunged into financial woes after borrowing 520 billion won from the central government to build the massive Pangyo residential complex. Regrettably, no other local administrations have failed to learn a lesson from the case.

The financial situations of local autonomy units have become worse. Their combined total budget grew from 47 trillion won in 1995 to 141 trillion won in 2010. But they still cannot attain financial self-reliance. About 47 percent of their outlay came from the state coffers in 2010, up from 42 percent in 2000. Their total debt soared to 29 trillion, compared with 19 trillion won in 2008. A considerable number of municipalities may face bankruptcy unless they take radical steps to restore their fiscal soundness.

First, the central government should step up its oversight of local authorities to prevent them from launching nonviable and wasteful projects. Municipalities must also go all-out to improve their governance, accountability and financial health. It is also important to make sure that mayors face sterner punishment for wasting budgets and cheating on accounting figures. Most of all, voters are required to make efforts to unseat irresponsible mayors, while closely monitor their budget operations and administration.

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