Controversy Over Accounting Fraud at Jeongui Alliance... "Audit Obligations Needed for Small-Scale Public Interest Corporations"

[Image source=Yonhap News]

[Asia Economy Reporter Ji-hwan Park] "If a company handles accounting like this, it will be crushed by the Financial Supervisory Service audit. Company representatives often face prosecution and end up in prison for embezzlement, breach of trust, and tax evasion." (Professor Han-sang Lee, Department of Business Administration, Korea University, Facebook)

The controversy over the donation accounting fraud of the Justice and Memory Foundation (Jeong-ui-yeondae) has not subsided. The controversy is broadly divided into 'three' parts.

First, Jeong-ui-yeondae held an event at a beer pub in Jongno, Seoul, in November 2018, spending 4.3 million won but did not handle the accounting separately and combined it with other business expenses in the ledger. Jeong-ui-yeondae claimed to have spent 33,398,305 won in donations at 50 places, but in the settlement disclosure, it only listed Diobrewings Co., Ltd., which operates the 'Octoberfest' beer pub in Seoul.

The National Tax Service has required since March last year that public interest corporations disclose detailed information when paying more than 1 million won annually to one place when reporting donation usage. Jeong-ui-yeondae did not comply with the tax authority's guidelines to separately record the organization name, payment purpose, number of beneficiaries, and amount for expenditures over 1 million won.

Second, Jeong-ui-yeondae omitted 2.273 billion won in donation income carried over. Jeong-ui-yeondae recorded in the '2018 Donation Collection and Expenditure Statement' that 2.273 billion won of donation income would be carried over to 2019. However, the 2019 documents showed the carried-over income as '0 won.'

Additionally, according to the 2018 'Donation Collection and Expenditure Statement' of Jeong-ui-yeondae posted on the National Tax Service Hometax, total expenditures were about 564.7 million won. But the detailed expenditure combining domestic and overseas projects showed about 324.52 million won spent. There is a missing expenditure of 240 million won in the 2018 Jeong-ui-yeondae accounting ledger. No such discrepancy occurred in 2016, 2017, or 2019.

Accounting experts emphasize the need for stricter supervision of settlement disclosures for public interest corporations, as they can be abused as a means of tax evasion during inheritance and gift processes among family members.

In particular, this incident occurred because Jeong-ui-yeondae was not legally obligated to undergo an audit by an external accounting firm like a general company, so there was no way to detect abnormalities in advance. From this year, public interest corporations (excluding religious and school corporations) with annual total income exceeding 5 billion won or annual donation income exceeding 2 billion won must undergo accounting audits by external accounting firms. However, Jeong-ui-yeondae had total assets of 2.11001 billion won and annual donation income of 825.51 million won last year, so it is not subject to this requirement.

An accounting industry official said, "Establishing procedures to transparently disclose how small public interest corporations such as civic groups use donations can revitalize the donation culture," adding, "A process where an objective third party verifies and confirms financial statements is more necessary."

This content was produced with the assistance of AI translation services.